NISM Certifications · NISM-Series-VIII: Equity Derivatives · Introduction to Forwards and Futures
The spot price of a share is Rs 500. Using the cost-of-carry model with continuous compounding is not required; assume simple carry at 12% per annum for 3 months and no dividends. What is the fair value of the 3-month futures?
The fair futures price is Rs 515. Under simple cost of carry, the spot price of Rs 500 grows by 12% annual interest for a quarter of a year, adding Rs 15, since there are no dividends to subtract.
- ARs 515Correct
- BRs 560
- CRs 530
- DRs 506
Explanation
Carry cost = 500 x 12% x 3/12 = Rs 15. Fair futures price = 500 + 15 = Rs 515. Rs 560 uses a full year of carry; Rs 530 applies 6%... incorrectly doubling the period; Rs 506 uses 1 month.
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