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Exam 2016-FRR Topic 1 Question 139 Discussion

Actual exam question for GARP's 2016-FRR exam
Question #: 139
Topic #: 1
Unico Delta stock is trading at $20 per share, its annualized dividend yield is 5% and the 12-month LIBOR is
3%. Given these statistics, the 12-month futures contact will trade at:

Suggested Answer: B Vote an answer

To calculate the 12-month futures price for Unico Delta stock, we use the formula for pricing equity futures, considering the current stock price, dividend yield, and the risk-free rate (LIBOR in this case):
=×()F=S×e(rd)t
Where:
* F is the futures price
* S is the current stock price ($20)
* r is the risk-free rate (3% or 0.03)
* d is the dividend yield (5% or 0.05)
* t is the time to maturity (1 year)
Plugging in the values:
=20×(0.030.05)×1F=20×e(0.030.05)×1 =20×0.02F=20×e0.02 20×0.9802F20×0.9802 20.04F20.04 Therefore, the 12-month futures contract will trade at approximately $20.04.
References
* How Finance Works.pdf, p. 206

by Clementine at Jun 12, 2025, 08:12 PM

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