Investments, tenth edition

Contract Maturity Data

Futures Price

January 15

$105.00

March 15

 104.75 

 Suppose that the effective annual T-bill rate is 1% and that the dividend yield is 2% 

per year. The “correct” March futures price relative to the January price is, according to 

Equation 22.3, 

  

105(1 1 .01 2 .02)

1/6

 5 104.82  

 The actual March futures price is 104.75, meaning that the March futures price is slightly 

underpriced compared to the January futures and that, aside from transaction costs, an 

arbitrage opportunity seems to be present. 

 Example  22.9 

Spread Pricing 

bod61671_ch22_770-798.indd   789

bod61671_ch22_770-798.indd   789

7/27/13   1:48 AM

7/27/13   1:48 AM

Final PDF to printer

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790

 

Equation 22.3 shows that futures prices with different maturities should all move 

together. This is not surprising because all are linked to the same spot price through the 

parity relationship.  Figure 22.6  plots futures prices on gold for three maturity dates. It is 

apparent that the prices move in virtual lockstep and that the more distant delivery dates 

command higher futures prices, as Equation 22.3 predicts.  

  

  eXcel  APPLICATIONS: Parity and Spreads 

  T

 he parity spreadsheet allows you to calculate futures 

prices corresponding to a spot price for different 

maturities, interest rates, and income yields. You can use 

the spreadsheet to see how prices of more distant con-

tracts will fluctuate with spot prices and the cost of carry. 

You can learn more about this spreadsheet by using the 

version available on our Web site at   www.mhhe.com/bkm   .