A single stock futures contract on a nondividend-paying stock
with current price $140 has a maturity of one year.
a. If the T-bill rate is 4.4%, what should the futures price be? (Round your answer to 2 decimal places.)
Futures price
$
b. What should the futures price be if the T-bill rate is still 4.4% and the maturity of the contract is three years? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Futures price $
c. What if the interest rate is 5.7% and the maturity of the contract is three years? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Futures price $
Explanation:
a.
F0 = S0(1 + rf) = $140 × 1.044 = $146.16
b.
F0 = S0(1 + rf)T = $140 × (1.044)3 = $159.31
c.
F0 = S0(1 + rf)T = $140 × (1.057)3 = $165.33
(a)
Future price formula = Spot rate * (1 + Risk free rate)^n
maturity (n)= 1 year
Spot rate = 140
risk free rate= 4.40%
So, future price = 140*(1+4.4%)^1
146.16
So, future price of contract should be $146.16
(b)
maturity (n)= 3 year
Spot rate = 140
risk free rate= 4.40%
So, future price = 140*(1+4.4%)^3
159.3050458
So, future price of contract should be $159.31
(b)
maturity (n)= 3 year
Spot rate = 140
risk free rate= 5.70%
So, future price = 140*(1+5.7%)^3
165.330507
So, future price of contract should be $165.33
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