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17 January, 17:42

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.)

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  1. 17 January, 17:46
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    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
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