The Relationship Between the Spot and Futures Prices of Financial

question 64

Multiple Choice

The relationship between the spot and futures prices of financial futures is given by

• A)[Futures price] = Spot price × (1 + r_f)^t (where r_f = risk-free rate).
• B)[Futures price] = Spot price × (1 + r_f − y)^t (where y = dividend yield or interest rate).
• C)[Futures price] = Spot price × (1 + r_m)^t (where r_m = market rate of return).
• D)[Futures price] = Spot price × (1 + r_m − r_f)^t.

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Definitions:

Photosynthesis

The process by which green plants, algae, and some bacteria convert light energy into chemical energy stored in glucose, using carbon dioxide and releasing oxygen.

Chemical Energy

A form of potential energy stored in chemical bonds between atoms and molecules, which can be released during chemical reactions.

Autotrophs

Organisms that produce their own food from inorganic substances using light or chemical energy, such as plants and some bacteria.

Pigment

Substances that give color to living organisms, such as chlorophyll in plants or melanin in human skin.