CMA Final · Strategic Financial Management · Forwards and Futures
Shares of Kaveri Textiles trade at ₹800. The risk-free rate is 8% per annum with continuous compounding, and no dividend is expected. What is the fair price of a 6-month forward contract on the share? (e^0.04 = 1.0408)
The fair forward price is ₹832.64. With no dividends, the forward equals spot compounded at the risk-free rate for the contract period: 800 × e^(0.08 × 0.5) = 800 × 1.0408. Using a full year or subtracting the carry gives wrong values.
- A₹832.64Correct
- B₹864.00
- C₹800.00
- D₹768.00
Explanation
Forward price = S × e^(rT) = 800 × e^(0.08×0.5) = 800 × 1.0408 = ₹832.64. Option ₹864 uses a full year of carry at 8% simple (800×1.08), which is the wrong time period. Option ₹768 subtracts the carry instead of adding it.
Did you get it right without looking?
One question tells you little. A timed set on Forwards and Futures shows your real accuracy, how long you take and where you lose marks.
More Forwards and Futures questions
- Spot gold is ₹60,000 per 10 g. The 6-month futures trades at ₹62,400. Annual interest rate is 6% (simple, so 3% for six months) and there is…
- The spot price of gold is ₹60,000 per 10 grams. Storage costs are ₹600 per 10 grams for a year, payable at the end of the year, and the risk…
- Sundaram Exports holds a portfolio worth ₹5,00,00,000 with a beta of 1.2 against Nifty. It wants to cut beta to 0.6 using Nifty futures pric…
- Nifty spot is 22,000. A 3-month futures contract is quoted at 22,500. The risk-free rate is 8% p.a. (simple, annualised) and the index yield…
- A portfolio manager holds equity worth ₹5 crore with a beta of 1.2 and wants to reduce beta to 0.6 using Nifty futures. Nifty futures trade …
- The spot price of gold is ₹60,000 per 10 grams. Storage cost is ₹600 per 10 grams per year payable at the end of the year, and the interest …