The Spot Price of the Market Index Is $900

question 7

Multiple Choice

The spot price of the market index is $900.A 3-month forward contract on this index is priced at $930.The annual rate of interest on treasuries is 2.4% (0.2% per month) .What annualized rate of interest makes the net payoff zero? (Assume monthly compounding.)

• A) 4.8%
• B) 8.5%
• C) 11.2%
• D) 13.2%

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Definitions:

Cash Flows from Operating Activities

The section of the cash flow statement that shows the cash generated or used by a company's primary business activities.

Property Plant and Equipment

Long-term assets used in the operations of a business, not intended for sale, including land, buildings, and machinery.

Investing Activities

Financial transactions involving the purchase and sale of long-term assets and investments not included in cash equivalents.

Financing Activities

Cash flow activities related to changes in the size and composition of the equity capital and borrowings of an entity.