A Stock Is Currently Selling for $104

question 1

Multiple Choice

A stock is currently selling for $104.12, and has a continuous dividend yield of 1.8 percent. What is the price of a futures contract on the stock that expires in five months if the risk-free rate of interest is 4.5 percent?

• A) $105.28
• B) $102.94
• C) $106.05
• D) $105.73
• E) $106.32

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Definitions:

Probability Values

Numerical measures ranging from 0 to 1, representing the likelihood or chance of a specific event occurring.

Deck

A pack of cards used in games, consisting typically of 52 pieces divided into four suits.

Addition Law

A probability law used to compute the probability of the union of two events. It is P(A ∙ B) = P(A) + P(B) − P(A ∩ B). For mutually exclusive events, P(A ∩ B) = 0; in this case the addition law reduces to P(A ∙ B) = P(A) + P(B).