The Spot Rate on a Non-Dividend-Paying Stock Is $42

question 35

Multiple Choice

The spot rate on a non-dividend-paying stock is $42.30. The risk-free rate is 3.75% and the market rate is 11.50%. What is the 3-month futures rate if spot-futures parity exists?

• A)$42.14
• B)$42.54
• C)$42.69
• D)$42.82
• E)$43.89

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Definitions:

Call Option

A financial contract that gives the buyer the right, but not the obligation, to buy an asset at a specified price within a certain period.

Strike Price

The set price at which an option contract can be bought (call) or sold (put) when it is exercised.

Underlying Stock

The stock that must be delivered when a derivative contract, like an option or futures contract, is exercised.

Initial Cost

The initial expenditure involved in purchasing an asset or starting a project.