Question

A hypothetical futures contract on a nondividend-paying stock with a current spot price of $100 has a maturity of one year. If the T-bill rate is 5%, what should the futures price be?

$95.24

$100

$105

$107

Answer 1

Future price = Spot price * (1 + i)^t

Here,

i (Risk free rate) = 5% or 0.05

Spot price = $100

t (period) = 1 year to maturity

Now,

Future price = $100 * (1 + 0.05)^1

Future price = $100 * 1.05

Future price = $105