Question

Consider a 6-month futures contract on a financial asset with dividend yield q=3.96% per year. Risk free rate is 10% per year. Current value of an asset is S0=$25. What should be the 6-month futures price on this asset, if there is no convenience yield and storage costs?

Answer 1

We can calculate the future price of the financial asset using the given information as below

Price of Financial Asset after 6 months

= Current Price of Asset + ( Current Price of Asset*(Risk free Rate - Dividend Yield)*6/12 )

= 25 + (25*(10% - 3.96%)* 0.5)

= 25 + (25 * ( 6.04%) * 0.5)

= 25 + (1.51 * 0.5)

= 25 + 0.76

= $25.76

So, the Future price of the Financial Asset after 6 month come out to be $ 25.76

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