# calculation of theoretical value of futures contract [closed]

we form a stock index by using only two stocks in the index.

One of the stocks is the Stock-A. The current selling price of the stock-A is 103 dollars and the second stock is the stock-B. The current selling price of the stock-B is 56 dollars.

The current value of the index is equal to 267 dollars. Stock-A pays a dividend of 13 dollars in 1 months.

Stock-B pays a dividend of 1.3 dollars in 2 months.

We form a futures contract written on this index expires in 3 months.

Currently, the finance cost of carry in the market is 0.42% per month.

How can we calculate the futures contract's theoretically fair value which is monthly compounding.

Should I use the formula $$f(T)= S_{stock}(1+r)^T-D_T$$ ?

I don't understand how can I use this formula when for two dividend payments and two different stocks exist?

Can you please give me a hint to solve this question?

$$Futures Price = Spot Index Value + Finance Charges - Dividends$$ You need to convert everything into index points. Check this out: https://www.cmegroup.com/education/files/understanding-stock-index-futures.pdf
• Hi, thanks for helping. I understand which formula that I use. That's, $$Futures Price = 267 + 103(1+0.0042)^{3/12} + 56(1+0.042)^{3/12} - (13 +13 + 1.3)$$ When I insert the values in the given formula, is this true? – 1190 May 20 '20 at 23:31