CFA Level I · CFA Level I Exam · Pricing and Valuation of Futures Contracts
An asset has a spot price of 50, and it pays no income and has no storage costs. The annual risk-free rate is 6% (annual compounding). The no-arbitrage price of a futures contract expiring in six months is closest to:
The futures price equals spot compounded at the risk-free rate over the contract life: 50 × 1.06^0.5, which is about 51.48. Using a full year of interest would give 53.00, which overstates the carry for a six-month contract.
- A50.00
- B51.48Correct
- C53.00
Explanation
F = S × (1+r)^T = 50 × 1.06^0.5 = 50 × 1.029563 = 51.48. Using 50 ignores carry cost; 53.00 uses a full year of interest (50 × 1.06) rather than six months.
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