Question #11
Reading: Reading 30 Pricing and Valuation of Forward Commitments
PDF File: Reading 30 Pricing and Valuation of Forward Commitments.pdf
Page: 5
Status: Unattempted
Question
The no-arbitrage price of a futures contract with a spot rate of 990, a time to maturity of 2 years, and a risk-free-rate of 5% is closest to:
Answer Choices:
A. 1091
B. 1040
C. 792
Explanation
The no-arbitrage price of a futures contract is based on the spot rate, the time to maturity,
and the risk-free-rate.
FP
= S0 × (1 + Rf)T
= 990(1.05)2
= 1091