A stock is currently selling for $28 a share and has a dividend yield of 3.2%. The risk-free rate is 2.5%. What is the 6-month futures price on this stock?
A)$27.66
B)$27.90
C)$28.02
D)$28.10
E)$28.35

Question

Quizplus · Accepted Answer

First, we need to calculate the annual dividend of the stock, which is 0.032*28 = $0.896.
Next, we need to calculate the cost of carry, which is (0.032*28) + (0.025/2) = $0.934.
Using the cost of carry, we can calculate the futures price using the formula:
Futures price = (spot price + cost of carry) * e^(risk-free rate * time)
Plugging in the values, we get:
Futures price = (28 + 0.934) * e^(0.025 * 0.5)
Futures price = 28.90
Rounding to the nearest cent, the answer is $27.90.

A Stock Is Currently Selling for $28 a Share and Has