The 4-Month Futures Price on a Non-Dividend-Paying Stock Is $25

question 52

Multiple Choice

The 4-month futures price on a non-dividend-paying stock is $25.00.The risk-free rate is 2.5 percent and the market rate is 9.0 percent.What is the spot rate for this stock if spot-futures parity exists?

• A) $24.43
• B) $24.71
• C) $24.30
• D) $24.80
• E) $24.99

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Definitions:

Average Tax Rate

The percentage of total income allocated towards taxes, determined by dividing the taxpayer's total tax payment by their overall income.

Marginal Tax Rate

The tax rate applied to the last dollar of income, representing the rate at which additional income is taxed.

Taxable Income

The portion of an individual’s or corporation's income that is subject to taxes by the government.

Average Tax Rate

The ratio of the total taxes paid to the overall income, found by dividing the aggregate amount paid in taxes by the total income.