**Future Contracts and Pricing**Consider an asset XYZ, which is currently selling for $200 in the cash market. This asset provides a return to its holder of $16 per year through quarterly distributions, meaning $4 is distributed each quarter. The next distribution is scheduled in 3 months (which equals one quarter of a year). Given the 3-month interest rate stands at 6% per year, the question arises: What is the price of the future contract with a delivery date 3 months from today?---This passage illustrates how to determine the price of a future contract based on current market conditions, expected distributions, and prevailing interest rates.

Selling price or Spot price(S) is $200 Dividend Per year is $16, 3 month interest rate(r) is 6% per…

Asset XYZ is selling for $200 in the cash market. Asset XYZ pays the holder $16 per year in quarterly distributions ($4 each quarter), with the next distribution due in 3 months (one quarter of a year). The 3-month interest rate is 6% per year. What is the price of the future contract with a delivery date 3 months from today?

Asset XYZ is selling for $200 in the cash market. Asset XYZ pays the holder $16 per year in quarterly distributions ($4 each quarter), with the next distribution due in 3 months (one quarter of a year). The 3-month interest rate is 6% per year. What is the price of the future contract with a delivery date 3 months from today?

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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