CFA Level I · CFA Level I Exam · Pricing and Valuation of Futures Contracts
A non-dividend-paying stock trades at 80.00. The continuously compounded risk-free rate is 4% per year. Assuming no storage costs or benefits, the no-arbitrage price of a futures contract expiring in 9 months is closest to:
The futures price is about 82.43. Multiply the spot price of 80 by e raised to 0.04 times 0.75, which is 1.0305, giving the cost-of-carry price for a non-dividend-paying asset.
- A80.00
- B82.43Correct
- C84.00
Explanation
F = S0 × e^(rT) = 80 × e^(0.04×0.75) = 80 × e^0.03 = 80 × 1.030455 = 82.44, roughly 82.43. Option 84.00 uses 5% simple annual compounding wrongly over a full year, and 80.00 ignores carrying costs.
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