Question

OneChicago has just introduced a single-stock futures contract on Brandex stock, a company that currently pays no dividends. Each contract calls for delivery of 2,400 shares of stock in 1 year. The T-bill rate is 4% per year. a. If Brandex stock now sells at $110 per share, what should the futures price be?

Answer 1

$114.4

Step-by-step explanation:

Data provided

Spot Price = $110

Risk free rate = 4%

Time period = 1

The calculation of futures price is given below:-

Future Price = Spot Price × (1 + Risk free rate)^time period

= $110 × (1 + 4%)^1

= $110 × (1.04)^1

= $110 × 1.04

= $114.4

Therefore for computing the future price we simply applied the above formula.