If spot-futures parity exists for an index future then the future price must equal the:
A)spot price.
B)present value of the spot price at the risk-free rate.
C)present value of the spot price at the market rate.
D)future value of the spot price at the risk-free rate.
E)future value of the spot price at the market rate.

Question

Quizplus · Accepted Answer

Spot-futures parity, also known as the cost-of-carry model, suggests that the futures price must equal the future value of the spot price when adjusted for the cost of carry, which includes the risk-free rate. This is because the futures price must account for the cost of financing (or carrying) the underlying asset until the future date, using the risk-free rate as the basis for this calculation.

If Spot-Futures Parity Exists for an Index Future Then the Future