A futures contract on as stock is currently selling for $81.87. The contract expires in three months, and the stock is selling for $80.65. What is the risk-free rate of interest?
A) 6.19%
B) 5.84%
C) 5.76%
D) 5.87%
E) 6.05%

Question

Quizplus · Accepted Answer

To solve this problem, we need to use the formula for the cost of carry model:
F = S × e^(r × t)
Where: 
F = Futures price
S = Stock price
r = Risk-free interest rate
t = Time to expiration

We know the futures price (F) is $81.87, the stock price (S) is $80.65, and the time to expiration (t) is 3 months or 0.25 years. We can rearrange the formula to solve for the risk-free interest rate (r):
r = ln(F/S) / t

Plugging in the values, we get:
r = ln(81.87/80.65) / 0.25
r = 0.0619 or 6.19%

Therefore, the best choice is A as it matches the calculated answer.

A Futures Contract on as Stock Is Currently Selling for $81.87