NISM Certifications · NISM-Series-VIII: Equity Derivatives · Introduction to Forwards and Futures
The spot price of a stock is Rs 800. Using the cost-of-carry model with continuous compounding, the risk-free rate is 6% per annum and there are no dividends. What is the approximate fair price of a 3-month futures contract (use e^0.015 = 1.01511)?
The fair futures price is spot multiplied by e raised to rate times time. With spot Rs 800, 6% rate and 0.25 years, this gives 800 × 1.01511, about Rs 812.09, because the carry cost is added to the spot price.
- ARs 812.09Correct
- BRs 836.00
- CRs 800.00
- DRs 788.12
Explanation
F = S × e^(rT) = 800 × e^(0.06×0.25) = 800 × 1.01511 = Rs 812.09. Rs 836 wrongly uses a full year of 6% plus extra. Rs 788.12 wrongly discounts instead of compounding.
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