The spot price of securities of X Ltd is Rs. 160. With no dividend and no carrying cost, compute the…
The forward price includes the financing cost over the one-month period. Using the annual rate proportionately, it is 160 × (1 + 0.09 × 1/12) = Rs. 161.20; there is no…
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The spot price of securities of X Ltd is Rs. 160. With no dividend and no carrying cost, compute the theoretical forward price of the securities for 1 month. You may assume a risk-free interest rate of 9% p.a.
Answer and explanation
Correct answer C
The forward price includes the financing cost over the one-month period. Using the annual rate proportionately, it is 160 × (1 + 0.09 × 1/12) = Rs. 161.20; there is no dividend deduction or additional carrying cost.
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Karnataka SET (KSET)