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.)
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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