The 5-month futures price on a non-dividend-paying stock is $85.85. The risk-free rate is 1.0% and the market rate is 11.75%. What is the spot rate for this stock if spot-futures parity exists?
A)$82.42
B)$82.51
C)$82.99
D)$83.32
E)$83.52

Question

Quizplus · Accepted Answer

The spot-futures parity formula is F = S * e^(rT). Solving for S gives S = F / e^(rT). Here, F = $85.85, r = 0.01 (risk-free rate), and T = 5/12 years. S = 85.85 / e^(0.01 * 5/12) = $82.51.

The 5-Month Futures Price on a Non-Dividend-Paying Stock Is $85