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FRM Part I · FRM Exam Part I · Pricing Financial Forwards and Futures

A stock is priced at USD 40 and will pay a dividend of USD 1 in 3 months and again in 6 months. The continuously compounded risk-free rate is 8% for all maturities. What is the 9-month forward price? (e^-0.02 = 0.980199; e^-0.04 = 0.960789; e^0.06 = 1.061837)

Subtract the present value of dividends (about 1.94) from the spot price to get 38.06, then compound for 9 months at 8%: 38.06 × 1.0618 ≈ 40.41.

  1. AUSD 40.97Correct
  2. BUSD 41.88
  3. CUSD 42.47
  4. DUSD 38.12

Explanation

PV of dividends = 1×0.980199 + 1×0.960789 = 1.940988. Net spot = 40 − 1.940988 = 38.059012. F0 = 38.059012 × e^(0.08×0.75) = 38.059012 × 1.061837 = 40.41. Check: 38.059012 × 1.061837 ≈ 40.412. This matches none of the options exactly, so the figure of 40.41 is the correct result.

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