Answer: Risk-free rate.

Derivatives are priced by constructing a hedge involving the underlying asset and a derivative, ensuring the combination pays the **risk-free rate**. This principle ensures arbitrage-free pricing, as any deviation would allow riskless profit opportunities. The dividend yield (Option B) and convenience yield (Option C) are not the required returns in this hedging framework. The convenience yield, while relevant for commodities, does not apply here as the hedge must compensate for the risk-free rate to maintain pricing equilibrium.

Author: LeetQuiz Editorial Team