A single stock futures contract on a nondividend-paying stock with current price
ID: 2641291 • Letter: A
Question
A single stock futures contract on a nondividend-paying stock with current price $110 has a maturity of one year.
If the T-bill rate is 4.0%, what should the futures price be? (Round your answer to 2 decimal places.)
What should the futures price be if the T-bill rate is still 4.0% and the maturity of the contract is three years? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
What if the interest rate is 5.1% and the maturity of the contract is three years? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
A single stock futures contract on a nondividend-paying stock with current price $110 has a maturity of one year.
Explanation / Answer
Future price = Spotprice * (1+r)^T
r = risk free rate and T = years to maturity
a)
future price = 110 * (1+4%) = $114.40
b)
future price = 110 * (1+4%)^3 = $123.74
c)
future price = 110 * (1+5.1%)^3 = $127.70
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