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Which one of the following four relationships should be used to price equity forwards or futures?
Suggested Answer: C
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29 comments · newest first
KI
Kizzy
10 months ago
I disagree, option D seems off to me.
AN
Andrew
10 months ago
Wait, is it really that simple? I'm not so sure about this.
DA
Dannette
10 months ago
Just to clarify, the risk-free rate should be added, right?
AR
Aracelis
10 months ago
I think option A is the right choice.
VI
Viola
11 months ago
Definitely going with option C! Makes the most sense.
FE
Felicidad
11 months ago
I’m confused about whether to add or multiply the rates. I think I need to review how dividends affect forward pricing again.
EV
Evangelina
11 months ago
I feel like option C might be the right choice since it uses multiplication, which seems to fit how we calculate future values.
RE
Rebecka
11 months ago
I practiced a similar question where we had to calculate the forward price, and I think it was something like market price plus adjustments for rates and dividends.
OD
Odette
12 months ago
I remember studying the pricing of equity forwards, and I think it involves adjusting the market price with the risk-free rate and dividends, but I'm not sure about the exact formula.
EI
Eileen
12 months ago
I've seen questions like this before. The key is to focus on the relationship between the forward/futures price and the underlying factors like the market price, risk-free rate, and expected dividends.
HA
Halina
12 months ago
I'm a bit confused by the different formulas. I'll need to carefully review the concepts of equity forwards and futures to determine which one is the correct relationship.
RI
Rikki
1 year ago
Okay, let's think this through step-by-step. We need to find the relationship that correctly prices the equity forward or futures contract based on the given information.
NI
Nickolas
1 year ago
This question seems straightforward, but I want to make sure I understand the relationship between the equity forward/futures price and the market equity price, risk-free rate, and expected dividend rate.
IN
Ines
1 year ago
Option C is the clear winner here. It's the formula I've seen in my textbooks, and I'm not about to start questioning the wisdom of financial experts.
VI
Viki
1 year ago
Option C, no doubt. It's the only one that doesn't have me scratching my head and wondering what kind of sorcery is going on.
WI
Wilda
1 year ago
User 2: Yeah, it seems the most straightforward.
EL
Elvera
1 year ago
User 1: I think option C is the way to go.
ST
Stephen
1 year ago
Option C is the way to go. It's the only one that correctly captures the relationship between the current market price and the forward or futures price.
BE
Beata
1 year ago
Definitely going with Option C. The formula is straightforward and aligns with the underlying principles of forward and futures pricing.
LA
Lavelle
1 year ago
I'm pretty sure it's Option C. The relationship makes sense intuitively, as the forward or futures price should be the current market price adjusted for the time value of money and expected dividends.
OR
Orville
1 year ago
I agree, it seems like the most logical choice.
AL
Allene
1 year ago
I think you're right, Option C does make sense.
ER
Erasmo
1 year ago
Option C seems to be the correct one. The forward or futures price should be the market price multiplied by the term (1 + risk-free rate - expected dividend rate) raised to the power of the time to expiration.
BE
Bernardo
1 year ago
User 3: That makes sense, it accounts for the time value of money.
MO
Mollie
1 year ago
User 2: I agree, it should be market price x (1 + risk-free rate - expected dividend rate)t.
RO
Rodney
1 year ago
User 1: I think the correct relationship is C.
VI
Viki
1 year ago
But C makes more sense because it accounts for the risk-free rate and expected dividend rate.
LY
Lyla
1 year ago
I disagree, I believe the correct relationship is A.
VI
Viki
1 year ago
I think the answer is C.