FMP 10. Pricing Financial Forwards and Futures

Learning Objectives

1) Define and describe financial assets.

2) Define short-selling and calculate the net profit of a short sale of a dividend-paying stock.

3) Describe the differences between forward and futures contracts and explain the relationship between forward and spot prices.

4) Calculate the forward price given the underlying asset’s spot price and describe an arbitrage argument between spot and forward prices.

5) Distinguish between the forward price and the value of a forward contract.

6) Calculate the value of a forward contract on a financial asset that does or does not provide income or yield.

7) Explain the relationship between forward and futures prices.

8) Calculate the value of a stock index futures contract and explain the concept of index arbitrage.