Fair Value
Fair value is the mutually agreeable price for a stock, product, or service, ensuring neither buyer nor seller loses, creating a win-win scenario under normal conditions. For example, Mr. A buys Mr. B’s shares at Rs. 1000, valuing them at Rs. 1200, while Mr. B is satisfied selling at Rs. 1000. The deal works for both. The formula for fair value is: Fair Value = Cash * {1 + r (x / 360)} - D, where Cash is the current value, r is the interest rate, x is days to expiry, and D is dividends. In futures, fair value aligns spot and contract prices, though market volatility causes fluctuations.
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