A non-dividend-paying stock has a current share price of $58.38 and a futures pr

Question

A non-dividend-paying stock has a current share price of $58.38 and a futures price of $60.24. If the maturity of the futures contract is four months, what is the risk-free rate? (Round your answer to 2 decimal places. Omit the "%" sign in your response.)

A non-dividend-paying stock has a current share price of $58.38 and a futures price of $60.24. If the maturity of the futures contract is four months, what is the risk-free rate? (Round your answer to 2 decimal places. Omit the "%" sign in your response.)

Explanation / Answer

Risk free rate = [ (P1 -P0) /P0 ] *12/n

                    = [(60.24 -58.38) /58.38 ] * 12 /4

                   = [ 1.86 / 58.38 ] * 3

                  = .0655 * 3

                 = .1965 or 19.65%

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