Question

A single stock futures contract on a nondividend-paying stock with current price $190 has a maturity...

A single stock futures contract on a nondividend-paying stock with current price $190 has a maturity of one year. a. If the T-bill rate is 6.0%, what should the futures price be?

b. What should the futures price be if the T-bill rate is still 6.0% and the maturity of the contract is three years? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

c. What if the interest rate is 6.7% and the maturity of the contract is three years? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Homework Answers

Answer #1

a.

Spot price = $190

Maturity = 1 year

T-bill or Risk free rate = 6%

(Assume there is no continuous compounding)

Future price formula = Spot price *(1+risk free rate)^n

=190*(1+6%)^1

=201.4

Future contract price is $201.40

b.

Time (n) =3 years

Future price formula = Spot price *(1+risk free rate)^n

=190*(1+6%)^3

=226.29

Future contract price is $226.29

c.

T-bill or risk free rate =6.7%

Time (n) =3 years

Future price formula = Spot price *(1+risk free rate)^n

=190*(1+6.7%)^3

=230.805875

Future contract price is $230.81

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