Question

A non-dividend-paying stock has a futures contract with a price of $72.4 and a maturity of three months. If the risk-free rate is 2.5 percent, what is the price of the stock? (Do not round intermediate calculations. Round your answer to 2 decimal places. Omit the "$" sign in your response.)

Stock price $

Answer 1

Answer: $71.95

Step-by-step explanation:

The futures price is the future value of the current stock price:

Future value = Current price * ( 1 + rate) ^ number of years

rate = 2.5%

Number of years = 3/12 months = 0.25 years

72.4 = Current price * (1 + 2.5%)⁰.²⁵

72.4 = Current price * 1.006192246325635997077792185601

Current price = 72.4 / 1.00619224632563599707779218560

= $71.95