A Futures contract is available on R Ltd. that pays an annual dividend of 4and whose stock is currently priced at 125. Each Futures contract calls…

CA Final · Advanced Financial Management · RTP · January 2026
A Futures contract is available on R Ltd. that pays an annual dividend of 4and whose stock is currently priced at 125. Each Futures contract calls for delivery of 1,000 shares to stock in one year, daily marking to market. The treasury bill rate is 8%. Required: (1) Given the above information, assess the price of one Futures contract. (2) If the company stock price decreases by 6%, then what will be the price of one Futures contract? (3) Suppose the company stock price decreases, then evaluate realizes gain or loss for an investor that has a long position in one Futures contract of R Ltd. (Ignore margin and taxation, if any)

Suggested Answer and Working Notes:

(1) Future Price = Spot + Cost of Carry – Dividend = 125 + (125x 0.08) - 4 = 131 Price of one future contract = 1000 share x 131 = 1,31,000 (2) Price decrease by 6% Market Price = 125 x 94% = 117.50 Then, price of one future contract = 117.50 + (₹ 117.50 x 0.08) - 4 = 122.90 = 122.90 x 1000 = 1,22,900 (3) If the investor has taken a long position, decrease in price will result in loss for the investor. Amount of loss will be: 1,31,000 -1,22,900 = 8,100

Topics: Derivatives Analysis & Valuation

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