NISM Certifications · NISM-Series-VIII: Equity Derivatives · Introduction to Forwards and Futures
A stock futures contract has spot Rs 1,000, cost of carry financing 9% p.a. simple, and a dividend of Rs 10 expected within the 4-month life of the contract (4 months = 1/3 year). Ignoring interest on the dividend, what is the theoretical futures price?
The theoretical futures price is Rs 1,020. Spot of Rs 1,000 plus financing cost of Rs 30 (9% for four months) gives Rs 1,030, and the expected Rs 10 dividend received by the holder of the stock is subtracted.
- ARs 1,040
- BRs 1,030Correct
- CRs 1,020
- DRs 1,010
Explanation
Financing cost = 1,000 x 0.09 x 1/3 = Rs 30. Fair price = 1,000 + 30 - 10 = Rs 1,020. Check: the answer is Rs 1,020, not Rs 1,030.
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