Question: The Value Line Index is designed to reflect changes in the value of a portfolio of over 1,600 equally weighted stocks. Prior to March 9,

The Value Line Index is designed to reflect changes in the value of a of over 1,600 equally weighted Prior to March 9, 1988, the change in the index from one day to the next was calculated as the geometric average of the changes in the prices of the underlying the index. In these circumstances, does equation (5.8) correctly relate the futures price of the index to its cash price? If not, does the equation overstate or understate the futures price?

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