If the spot-futures parity exists on a financial future, then the future price must equal the
A) Future value of the spot price at the market rate
B) Future value of the spot price at the risk-free rate
C) Spot price
D) Present value of the spot price at the risk-free rate
E) Present value of the spot price at the market rate

Question

Quizplus · Accepted Answer

The spot-futures parity, also known as the cost-of-carry model, states that the future price must equal the future value of the spot price at the risk-free rate. This relationship accounts for the cost of carrying or holding the underlying asset until the future's delivery date, using the risk-free rate as the basis for calculating the future value.

If the Spot-Futures Parity Exists on a Financial Future, Then