Skip to content

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

The Nifty spot is 20,000. The risk-free rate is 6% per annum (continuous compounding ignored; use simple interest), no dividends are expected, and the futures contract expires in 3 months. What is the theoretical futures price using the cost of carry model?

The theoretical futures price is 20,300. Using the cost of carry model with simple interest, spot of 20,000 grows by 6% for a quarter of a year, which is 1.5%, giving 20,000 multiplied by 1.015, equal to 20,300.

  1. A20,300Correct
  2. B20,600
  3. C20,000
  4. D19,700

Explanation

F = S x (1 + r x t) = 20,000 x (1 + 0.06 x 0.25) = 20,000 x 1.015 = 20,300. Option 20,600 uses a full year's interest of 6% on... actually 20,000 x 1.03, ignoring the 3-month fraction. 19,700 subtracts carry wrongly.

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