Purchase Solution

determining current futures prices

Not what you're looking for?

Ask Custom Question

One specialized type of security is called an equity futures. This is a contract that guarantees you a share of a particular company to be delivered to you not today, but sometime in the future, at a price that is determined by the market right now. This price is usually called the futures price of the stock (note - the term is plural - "futures"). If you 'buy' this futures, you don't pay for the shares now. You are actually signing a contract whereby you are committed to pay that price in a particular date in the future, and you are guaranteed to receive one share of the company at that time, irrespective of its actual market price at that future date. Suppose for example that the futures price of the XYZ company is $40. Suppose you 'buy' a 6-months futures contract. If six months later the share price is $45, you gain $5 per share. If the market price in 6 months is only $35, then you lose $5.

Using the Yahoo Finance take a look at the five year chart for Apple.INC. Using this chart and other information you can find on this company, answer the following question:

What do you think would the futures price of 100 shares of Apple, INC company to be delivered to you in one year be right now?

Purchase this Solution
Solution Summary

Forecast share price of Wal-Mart is emphasized.

Solution Preview

Instead of writing up a report for Apple.INC, I decided it was better to give you an example and then you could write it up yourself following the guidelines below. I chose to use Wal-Mart for an example.

Forecast share price of Wal-Mart:

The trend in share price of Wal-Mart shows that, the price was quite stable over the period. Although growth in shares price was negative in 2006 and 2009 but over a period of time investors were getting a significant return on their investments. The market price of share is increasing with an average growth rate of 3.7225% over the last five years. This average growth rate can be used to forecast the future price of the stock of Wal-Mart. Based on this average growth rate and consideration of all the risks, it can be estimated that the share price will be $55.4395 for next year. It is forecasted on the basis of average growth in shares price over the years. This share price would increase the market value of 100 shares equal to $5543.95. The change in the share price of Wal-Mart from year 2005 to 2009 is shown in table below -

Year Share price Growth in share price
2005 $46.8
2006 $46.18 -1.32%
2007 $47.53 2.92%
2008 $56.06 ...

Purchase this Solution
Free BrainMass Quizzes
Business Processes

This quiz is intended to help business students better understand business processes, including those related to manufacturing and marketing. The questions focus on terms used to describe business processes and marketing activities.

MS Word 2010-Tricky Features

These questions are based on features of the previous word versions that were easy to figure out, but now seem more hidden to me.

Six Sigma for Process Improvement

A high level understanding of Six Sigma and what it is all about. This just gives you a glimpse of Six Sigma which entails more in-depth knowledge of processes and techniques.

Understanding the Accounting Equation

These 10 questions help a new student of accounting to understand the basic premise of accounting and how it is applied to the business world.

Team Development Strategies

This quiz will assess your knowledge of team-building processes, learning styles, and leadership methods. Team development is essential to creating and maintaining high performing teams.

View More Free Quizzes
Related BrainMass Solutions

  • Financial risk management-

    This solution calculates an implied volatility on a futures prices given a current futures price, exercise price, risk-free rate, time to maturity and put price.

  • Hedging and Forecasting in Global Value Chains

    DIFFERENCE BETWEEN FORECASTING AND ESTIMATING Forecasting is determining future outcomes through analysis of past events and outcomes.

  • Currency Derivatives and Current Price

    Alternatively, you could wait until the settlementdate, purchase the pounds in the spot market, and fulfill the futures obligation by delivering pounds atthe price of $1.59 per pound. The expert examines currency derivatives and current prices.

  • Case Study, "Futures Markets"

    This information can be used to determine the current position of the outstanding futures contracts.

  • Forwards and Futures Question

    The wholesaler can also buy cheap cognac futures contracts for November 2016. The current futures price is $51,000 for each 10,000 gallon futures contract.

  • Speculating with Currency Futures

    Explain The speculative activity would cause futures prices to exceed the current rate and it would cause the forward prices to decline from a downward pressure due to the continual cycle of selling into the forward market.

  • Veblen: Discuss Derivatives, Future Contracts to Hedge Currency and Interest Rate Risk

    for the next 6 months and thus, prevent yourself from rising crude oil prices as the long position will enable you to lock-in crude oil prices for delivery in the next 6 months.

  • Market and Limit Order Etc.

    In this case you want to buy futures and exit if the prices touch $370 oz. d. You want to institute a hedge only if you can obtain a gold futures price of $365 oz or less.

  • Liquor wholesaler's decision about futures contract

    The wholesaler can also buy liquor futures contracts for June 2007. The current futures price is $51,000 for each 10,000 gallon futures contract. The wholesaler is determined to lock in the cost of the 100,000 gallons needed in June.

  • Options and Futures

    If you weren't the only one to notice the problem, what would happen to the prices of the stocks in the S&P index? What would happen to the futures price? Please see attached file.

View More Related Solutions