CFA Level I · CFA Level I Exam · Pricing and Valuation of Futures Contracts
A 3-month futures contract on a stock index has a spot level of 4,000. The continuously compounded risk-free rate is 3.00% and the continuously compounded dividend yield is 1.00%. The no-arbitrage futures price is closest to:
The futures price is about 4,020. Spot is grown at the net carry of the 3% risk-free rate less the 1% dividend yield, 2% annually, over a quarter year, giving 4,000 times e to the 0.005, or roughly 4,020.
- A3,980
- B4,020Correct
- C4,040
Explanation
F = S x e^((r - d)T) = 4,000 x e^(0.02 x 0.25) = 4,000 x e^0.005 = 4,000 x 1.005013 = 4,020.05. Using r alone gives about 4,030 and subtracting the net carry gives 3,980, both wrong.
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