If the Risk-Free Rate Is Greater Than the Dividend Yield

question 59

Multiple Choice

If the risk-free rate is greater than the dividend yield, then we know that ________.

• A) the futures price will be higher as contract maturity increases
• B) F₀ < S₀
• C) F_T > S_T
• D) arbitrage profits are possible

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Definitions:

Supply-side Economics

An economic theory that suggests lower taxes and decreased regulation will stimulate the economy by increasing production.

Incentive

A factor, monetary or otherwise, that motivates individuals or entities to behave in a certain way.

Work

Physical or mental effort done in order to achieve a purpose or result, often related to employment or tasks.

Invest

The action of allocating resources, usually financial, into something with the expectation of generating income or profit.