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uranmaximum [27]
3 years ago
11

A single-stock futures contract on a non-dividend-paying stock with current price $250 has a maturity of 1 year. If the T-bill r

ate is 4%. What should the futures price be if the maturity of the contract is 2 years?
Business
1 answer:
Nuetrik [128]3 years ago
4 0

Answer:

$270.4

Explanation:

Calculation for What should the futures price be if the maturity of the contract is 2 years

Using this formula

Future Price= Stock Price ×(1 + Risk Free rate)^Maturity years

Let plug in the formula

Future Price=$250×(1+4%)^2

Future Price=$250×(1+0.04)^2

Future Price$250×(1.04)^2

Future Price=$250×1.0816

Future Price=$270.4

Therefore What should the futures price be if the maturity of the contract is 2 years will be $270.4

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This strategy is usually followed for those products which are globally acclaimed and thus need for any alteration or promotion is undesirable as the market for such products has already been created.

As the word suggests, extension means extending the same product globally.

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