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 2,500 shares of stock in 1 year. The T-bill rate is 9% per year.a. If Brandex stock now sells at $110 per share, what should the futures price be? (Round your answer to 2 decimal places.)

Answer 1

Answer: 299750

Explanation:

Based on no-arbitrage approach, future price should be equal to spot price compounded by risk-free rate.

Spot price = $110

Risk-free rate = 9%

Future price = 110*(1+9%) = 119.9

For 2500 shares = 119.9*2500 = 299750