Skip to content

NISM Certifications · NISM-Series-VIII: Equity Derivatives · Introduction to Forwards and Futures

A stock trades at spot Rs 500. The risk-free rate is 8% per annum (continuous compounding is ignored; use simple interest) and no dividends are expected. What is the fair price of a 3-month futures contract using the cost of carry model F = S(1 + r×t)?

The fair futures price is Rs 510. Using the cost of carry model, spot Rs 500 is grown at 8% for three months, which is 2%, giving 500 multiplied by 1.02. With no dividends, the only adjustment is the financing cost.

  1. ARs 490
  2. BRs 510Correct
  3. CRs 520
  4. DRs 540

Explanation

F = 500 × (1 + 0.08 × 3/12) = 500 × 1.02 = Rs 510. Rs 520 results from using a 6-month period, and Rs 490 wrongly subtracts the carrying cost. Rs 540 applies the full annual rate for one year.

Did you get it right without looking?

One question tells you little. A timed set on Introduction to Forwards and Futures shows your real accuracy, how long you take and where you lose marks.

Practise Introduction to Forwards and FuturesFree diagnostic mock

More Introduction to Forwards and Futures questions