The multiplier for a futures contract on a stock market index is $80. The maturity of the contract is one year, the current level of the index is $5,100, and the risk-free interest rate is 0.4% per month. The dividend yield on the index is 0.1% per month. Suppose that after one month, the stock index is at 5,150. Required: a. Find the cash flow from the mark-to-market proceeds on the contract. Assume that the parity condition always holds exactly. b. Find the holding-period return if the initial margin on the contract is $10,600. Answer is complete but not entirely correct. Complete this question by entering your answers in the tabs below. Required A Required B Find the cash flow from the mark-to-market proceeds on the contract. Assume that the parity condition always holds exactly. Note: Do not round intermediate calculations. Round your answer to 2 decimal places. Cash flow $ 4,000.00 x

The multiplier for a futures contract on a stock market index is $80. The maturity of the contract is one year, the current level of the index is $5,100, and the risk-free interest rate is 0.4% per month. The dividend yield on the index is 0.1% per month. Suppose that after one month, the stock index is at 5,150. Required: a. Find the cash flow from the mark-to-market proceeds on the contract. Assume that the parity condition always holds exactly. b. Find the holding-period return if the initial margin on the contract is $10,600. Answer is complete but not entirely correct. Complete this question by entering your answers in the tabs below. Required A Required B Find the cash flow from the mark-to-market proceeds on the contract. Assume that the parity condition always holds exactly. Note: Do not round intermediate calculations. Round your answer to 2 decimal places. Cash flow $ 4,000.00 x

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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The multiplier for a futures contract on a certain stock market index is $250. The maturity of the contract is one year, the current level of the index is 1,500, and the risk-free interest rate is 0.2% per month. The dividend yield on the index is 0.1% per month. Suppose that after one month, the stock index is at 1,533. Find the cash flow from the mark-to-market proceeds on the contract. (Do not round intermediate calculations. Round your answer to 2 decimal places.) Cash flow
the multiplier of a futures contract on the stock market index is $250. The maturity of the contract is one year. The current level of the index is 2600 , and the risk free interest rate is .2% per month. The dividend yield on the index is ..4% per month. Suppose that after five months, the stock index is at $2533. Assume that the party condition always hold exactly. Find the holding period return for the short position if the initial margin of the contract is 10% of the original contract value.
Consider the futures contract written on the S&P 500 index and maturing in one year. The interest rate is 3%, and the future value of dividends expected to be paid over the next year is $35. The current index level is 2,000. Assume that you can short sell the S&P index.a. Suppose the expected rate of return on the market is 8%. What is the expected level of the index in one year?b. What is the theoretical no-arbitrage price for a 1-year futures contract on the S&P 500 stock index?c. Suppose the actual futures price is 2,012. Is there an arbitrage opportunity here? If so, how would you exploit it?
Suppose a stock is currently (time t = 0) worth 100. Further, suppose the one year annually compounded interest rate is 2%, and the two year annually compounded rate is 3%. Find the following:a) The forward price for a forward contract on the stock with maturity year T1 = 1. b) The forward price for a forward contract on the stock with maturity year T2 = 2.c) The forward price for a forward contract with maturity T1 = 1 on a ZCB with maturity T2 = 2.d) The forward price for a forward contract with maturity T1 = 1 on a forward contract on the stock with maturity T2 = 2 and delivery price K = 101.
Consider a 4-month forward contract for which the underlying asset is a stock index with value of 3, 825.97 and a continuous dividend yield of 0.5% Assume the continuous risk-free annual interest rate is 4.5%, a. Determine the no arbitrage forward price. $ Round your answer to the nearest cent b. Calculate the value of a long position if 2 month(s) later the index changes to 3, 825.97 and the risk-free rate is still 4.5% $ Round your answer to the nearest cent
Consider a six-month futures contract on the FTSE 100. Assume the stocks underlying the index provide an annual dividend yield of 6.2% and the value of the index is 6754.5. Calculate the price of the index (to the nearest full index point) if the continuously compounded risk-free interest rate is (i) 6.9% and (ii) 5.
You observe that the settlement price of a one-year futures contract for 1 share of a dividend paying stock is currently at $52. The current stock price is $50 and the risk-free interest rate is 10% p.a. (compounded annually). It is also known that the dividend yield on the stock is 4% p.a. (compounded annually). Set up a strategy to realize an arbitrage profit today and show the initial and terminal cash flows from each position taken in the strategy. Assume that investors can short-sell or buy the stock on margin and that they can borrow and lend at the risk-free rate. Thank you!
The S&P portfolio pays a dividend yield of 1% annually. Its current value is 1,300. The T-billrate is 4%. Suppose the S&P futures price for delivery in 1 year is 1,330. Construct an arbitragestrategy to exploit the mispricing and show that your profits 1 year hence will equal the mispricing in the futures market.
In two-months the price of stock will be either $23 or $27. The risk-free interest rate is 10%. The current price of the stock is $25. Suppose the price of the stock will be ST at the end of the two-months and the derivative on the stock will pays off Sr?. Find the value of the derivative. (A) $621.39 (B) $729.39 (C) $529.39 (D) $639.26
In two-months the price of stock will be either $23 or $27. The risk-free interest rate is 10%. The current price of the stock is $25. Suppose the price of the stock will be ST at the end of the two-months and the derivative on the stock will pays off St². Find the value of the derivative. (A) $621.39 (B) $729.39 (C) $529.39 (D) $639.26
Given the following quotes: FBM KLCI spot = 747 points, risk-free rate = 4.5% annualised, FBM KLCI dividend yield = 1.75% annualised. i) If the 90-day KLCI futures is quoted at 762 points, show that arbitrage is possible ii) Calculate the arbitrage profit if FBM KLCI is 10% higher by futures maturity.
The S&P portfolio pays a dividend yield of 1% annually. Its current value is 2,000. The T-bill rate is 4%. Suppose the S&P futures price for delivery in 1 year is 2,050. Construct an arbitrage strategy to exploit the mispricing and show that your profits 1 year hence will equal the mispricing in the futures market.

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