Identifier: C3T3L1 · Revision: 2026-10-26 · Classification: domestic

Decision and objectives

Calculate an illustrative equity futures carry price. The decision record must connect the exposure, cash dates and implementable contract, rather than stop at a favorable price forecast.

By the end, you can calculate an illustrative equity futures carry price; adjust for dividends without double counting income; explain why a theoretical premium is not an executable arbitrage.

Prerequisite: C3T2L5; completed Classes 1 and 2 and the Stock Market School foundation or Forex School foundation. All cases below are hypothetical; their prices, costs, rates, dates, contractual assumptions and collateral amounts are teaching inputs, not current offers.

Mechanics

Buying a share today ties up money and earns any distributions paid during ownership. A future provides exposure without that initial purchase but reflects financing and expected distributions in its quotation. A price index excludes reinvested dividends, so forecast index cash distributions matter. The investor in a future does not receive the issuer dividend directly.

A theoretical fair value is a comparison under stated access, borrowing and funding assumptions. A dealer quote can include balance-sheet costs and an executable arbitrage needs both legs and the necessary securities financing.

Price and return drivers

With simple financing and known dividends valued at expiry, illustrative F = spot × (1 + r × T) − dividends at expiry. r is an annual decimal, T is years under the stated day basis, and both prices use identical units. If dividends occur earlier, carry their cash to expiry or subtract their present value before carrying spot. This approximation is not the continuous-compounding model.

Worked case

Hypothetical index spot 10,000 points, 90 days actual/360, annual financing 40%, and expected dividends equivalent to 150 points paid at expiry. Carry price = 10,000 × (1 + 0.40 × 90/360) − 150 = 10,850 points. With TRY 10 multiplier this is TRY 108,500 exposure per contract. A futures quote of 10,900 is 50 points or TRY 500 above this model; it is not automatically a net profit. Supplied all-in cash-basket execution TRY 160, futures fees TRY 40, custody TRY 30 and additional funding friction TRY 120 total TRY 350, leaving only TRY 150 of theoretical surplus before tax and model error.

Adverse case

If financing is 44% and dividends only 100 points, fair price becomes 11,000. The same 10,900 quote is now 100 points below the revised model. A short future against a basket funded under the original forecast can lose its anticipated edge. Dividend cancellation also changes basket income and hedge economics; an index-weight change or imperfect basket leaves tracking risk.

Practical use

Use the contract's underlying index, dividend treatment and adjustment rules. Obtain executable basket prices and actual borrowing and deposit rates for the same dates. Collateral funding on the short future is additional to financing the cash basket; a futures rise can demand cash while the basket's appreciation remains unrealized. Record tax and distribution treatment under the investor's status instead of assuming gross dividends are spendable.

Reconcile the confirmation, position register and cash statement separately. Costs include the quoted bid/ask spread, brokerage and clearing charges, collateral or principal financing, currency conversion, custody where relevant, and exit or termination charges. A mark is not a fill. Any amount explicitly excluded below remains outside the reported result. Tax is excluded from these teaching cases: an actual comparison requires income year, investor residence and individual/corporate status, contract and acquisition dates, settlement form and effective law. The GIB guide, checked 2026-10-26, covers 2025 individual investment income, so its publication date alone does not settle a 2026 derivative liability.

Decision boundaries

The formula explains a basis, not a trading recommendation. Retain the baseline if the apparent surplus is smaller than uncertain dividend, financing or execution costs. Do not deduct dividends twice by using a total-return underlying and subtracting cash distributions again.

Practice and references

Exercise: hypothetical share spot TRY 100, 60/360 year, financing 36%, dividend TRY 2 paid at expiry. Solution: 100 × (1 + 0.36 × 60/360) − 2 = TRY 104. A 100-share contract is TRY 10,400 notional. If no dividend is paid, fair price is TRY 106; a TRY 104 quotation does not lock a TRY 2 profit without the assumed income.

Takeaway: Explain why a theoretical premium is not an executable arbitrage using the actual cash schedule, with every excluded cost and remaining exposure stated.

Reference card: viop-future. Formula: Equity simple carry price. Glossary: Cost of carry, Price index. Next lesson: C3T3L2. Topic test.

Sources and verification date (2026-10-26):

Shared reference guide