A stock that pays no dividends has a price of $50. The one-month maturity, at-the-money European call and put are trading at $10 and $9.90, respectively. The one-month forward price of the stock is:
A) 49.90
B) 50.00
C) 50.10
D) 50.20

Question

Quizplus · Accepted Answer

The one-month at-the-money call and put options are trading at a fair price because the stock pays no dividends. Therefore, the forward price can be calculated as the spot price plus the cost of carry. Since there are no dividends, the cost of carry is simply the risk-free rate. Assuming a risk-free rate of 0%, the forward price is equal to the spot price, which is $50. Thus, the answer is C, 50.10, since it is the closest option to 50.

A Stock That Pays No Dividends Has a Price of $50