Week 3 Exercise: Future Contracts
1. Determine the price of the SPI200 futures contract expiring in 281 days when the
S&P/ASX 200 Index is trading at 7301.704, the continuously compounded rate of
return is 4.1516%pa, the dividend yield is 3.35%pa and custody costs are
1.687%pa
- R div = 3.35%
R cc = 4.1516%
T (days) = 281 days or 281/365 year
S0 = 7301.704
R cost= 1.687%
𝐾𝑡 = 𝑆0 × 𝑒 (𝑟𝑐𝑐−𝑟𝑑𝑖𝑣+𝑟𝑐𝑜𝑠𝑡𝑠) ×𝑇
Kt= 7301.704 × e (4.1516% - 3.35% + 1.687% )× 281/365= 7442.94465= 7443
The price of the SPI200 futures contract = 7443
2. Determine the price of the SPI200 futures contract expiring in 97 days when the
S&P/ASX 200 Index is trading at 7364.902, the effective rate of return is
3.2516%pa, the dividend yield is 3.53%pa and custody costs are 1.73%pa
T= 97 days or 97/365 year
S0= 7364.902
R eff = 3.2516%
R div = 3.53%
R costs = 1.73%
𝐾𝑡 = 𝑆0 × (1 + 𝑟𝑒𝑓𝑓 − 𝑟𝑑𝑖𝑣 + 𝑟𝑐𝑜𝑠𝑡𝑠) ^𝑇
Kt= 7364.902 × (1+3.2516%-3.53%+1.73%)^ 0.2657534 = 7393.1633=7393
The price of the SPI200 futures contract =7393
3. Determine the price of the 156-day futures contract over a stock trading at $97.33,
when the continuously compounded rate of return is 3.4512%pa, the dividend to
be paid in 143 days is expected to be $4.18 and custody costs are 1.96%pa
T= 156 days or 156/365 year
S0= $97.33
R cc = 3.4512%
Div = $4.18
R div= $4.18/$97.33= 4.29%
R costs = 1.96%
𝐾𝑡 = 𝐾𝑡 = 𝑆0 × 𝑒 (𝑟𝑐𝑐−𝑟𝑑𝑖𝑣+𝑟𝑐𝑜𝑠𝑡𝑠) ×𝑇
Kt = 97.33 × e( 3.4512%-4.29%+1.96%)156/365= $97.7975= $97.8
4. Determine the price of the West Texas Intermediate (WTI) crude oil futures
contract traded on the New York Mercantile Exchange which has 12 days to
expiry, when physical WTI is trading at $75.89 per barrel, the continuously
compound rate of return is 3.1855%pa and storage costs are$0.76 per barrel per
annum. To answer this question correctly, you MUST research the NYMEX WTI
Crude Oil contract to determine how it is quoted. In your answer you also must
state the contract unit.
T= 12 days or 12/365 year
S0= $75.89
R cc= 3.1855%
Costs= $0.76
Kt = 𝑆0 × 𝑒 (𝑟𝑐𝑐−𝑟𝑑𝑖𝑣+𝑟𝑐𝑜𝑠𝑡𝑠) ×𝑇
Kt= 75.89×e (3.1855%+ 0.76)× 12/365=77.89163084
= 77.89
A single contract of NYMEX WTI Crude Oil contract’s quantity =1000 Unit
(barrels)
Source of info Link for NYMEX WTI Crude Oil contract
https://www.cmegroup.com/markets/energy/crude-oil/light-sweet-crude.html
5. Determine profit from the following transaction. You purchase 55 SPI200 futures
contracts at 7372 and hold them to expiry when the market settles at 7322.50. In
your answer you must state your financial counterparty to this transaction and how
settlement is arranged.
