CFA Level 1
Derivatives

Theoretical Futures Price Calculation

Very Hard Derivative Pricing And Valuation Futures Contracts

Consider a futures contract on a non-dividend paying stock with a current spot price of $100. The risk-free rate is 5% per annum, and the time to maturity of the futures contract is 1 year. Using the cost-of-carry model, what is the theoretical price of the futures contract? Assume continuous compounding for the risk-free rate.

Recall that the theoretical futures price can be calculated using the formula: F = S * e^(rT), where:

  • F = futures price
  • S = spot price
  • r = risk-free rate (annualized)
  • T = time to maturity (in years)

Given these factors, calculate the price of the futures contract.

Hint

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