The spot rate on a non-dividend-paying stock is $42.30. The risk-free rate is 3.75% and the market rate is 11.50%. What is the 3-month futures rate if spot-futures parity exists?
A)$42.14
B)$42.54
C)$42.69
D)$42.82
E)$43.89

Question

Quizplus · Accepted Answer

The futures price can be calculated using the formula: Futures Price = Spot Price * e^(risk-free rate * time). Here, the spot price is $42.30, the risk-free rate is 3.75% (or 0.0375), and the time is 3/12 years. Thus, Futures Price = $42.30 * e^(0.0375 * 0.25) ≈ $42.69.

The Spot Rate on a Non-Dividend-Paying Stock Is $42