The 9-month futures price on a non-dividend-paying stock is $38.20. The risk-free rate is 2.75 percent and the market rate is 9.60 percent. What is the spot rate for this stock if spot-futures parity exists?
A) $37.43
B) $37.84
C) $38.30
D) $38.70
E) $38.99

Question

Quizplus · Accepted Answer

The correct answer is A because the spot rate is calculated as the futures price divided by (1 + risk-free rate * time to maturity) * (1 + market rate * time to maturity). In this case, the spot rate is $38.20 / (1 + 0.0275 * 0.75) * (1 + 0.0960 * 0.75) = $37.43.

The 9-Month Futures Price on a Non-Dividend-Paying Stock Is $38