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The Spot Rate on a Non-Dividend-Paying Stock Is $15

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The spot rate on a non-dividend-paying stock is $15.70.The risk-free rate is 3.15 percent and the market rate is 10.75 percent.What is the three-month futures rate if spot-futures parity exists?


Definitions:

Marginal Tax Bracket

The tax rate that applies to the next dollar of taxable income, indicating the percentage of tax paid on the last dollar earned.

Taxable Yield

The yield on an investment before the effects of taxes are taken into account, relevant for investors in taxable accounts.

Futures Contract

Standardized legal agreements to buy or sell a specific commodity or financial instrument at a predetermined price at a specified time in the future.

Short Position

Entering a financial transaction where the investor benefits from a decline in the value of an asset.

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