An investor wants to use S&P 500 index futures to create a synthetic market index position of $250 million for 6 months. The current level of the S&P 500 index is 4,521. The 6-month futures price is 4,528. The S&P 500 futures multiplier is 50. The risk-free rate is 2% per year. The value of one S&P 500 index futures equals 50 times the current level of the index. What should the investor do to create the synthetic market index position?

An investor wants to use S&P 500 index futures to create a synthetic market index position of $250 million for 6 months. The current level of the S&P 500 index is 4,521. The 6-month futures price is 4,528. The S&P 500 futures multiplier is 50. The risk-free rate is 2% per year. The value of one S&P 500 index futures equals 50 times the current level of the index. What should the investor do to create the synthetic market index position?

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 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 2550 , and the risk free interest rate is .0% per month. The dividend yield on the index is .2% per month. Suppose that after five months, the stock index is at $2495. 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.
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 S&P500 index is currently valued at 2862. What should be the price (FO) on the futures contract expiring 79 DAYS from now if the S&P500 has a dividend yield of 1.70%, the rf is 2.75%, and the S&P500 has an expected return of 5.00%? Assume the risk-free rate and yields are annualized, and there are 365 DAYS per year. O 2,852.85 O2,806.52 O2,839.22 O2,868.48 O 2,829.76.
Suppose the S&P 500 index futures price is currently 950 and the initial margin is 10%. You wish to enter into 10 S&P 500 futures contracts. a. What is the notional value of your position? What is the margin? b. Suppose you earn a continuously compounded rate of 6% on your margin balance, your position is marked to market weekly, and the maintenance margin is 80% of the initial margin. What is the greatest S&P 500 index futures price 1 week from today at which you will receive a margin call?
The S&P 500 spot price is $4,570. The futures price with 6-months delivery is $4,895. The risk-less rate of return for 6-months is 3.68%. You enter into ONE futures contract to deliver ONE index portfolio in 6-months and receive $4,895. Whatever profit you make, you transfer to today. How much $ profit will you have today? Hint: Borrowing money today and selling risk-less bonds are equivalent actions. Whatever $ profit you may make from the above transactions, you have to bring back to today by borrowing at the risk-less rate. Assume no transactions costs (you can borrow and lend at the risk-less rate etc.).
The multiplier for a futures contract on a stock market index is $50. The maturity of the contract is 1 year, the current level of the index is 1,800, and the risk-free interest rate is .5% per month. The dividend yield on the index is .2% per month. Suppose that after 1 month, the stock index is at 1,820.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 $5,000
The six-month S&P 500 futures index you are considering buying. The current value of the index is 940. The six-month interest rate is 6% and the expected dividend rate for the underlying stocks is 3% over that period. Ignoring all other factors, calculate today’s fair value for the six-month future
Assume that the Index is currently at 2,000. You manage a $10 million indexed equity portfolio. The Index futures contract has a multiplier of $50. A) If you are temporarily bearish on the stock market, how many contract should you sell to fully eliminate your exposure over the next six months? B) If T-bills pay 2% per six months and the semiannual dividend yield is 1%, what is the parity value of the futures price? Explain with each step and proper formatting.
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.
The current value of BSE SENSEX is 10000 and the annualized dividend yield on the index is 5%. A six-month-futures contract on the BSE SENSEX is quoted at 10200. If the return on Treasury Bills available in the market for the same maturity is 5% and 25 % of the stocks included in the index will pay dividends during the next six months, you are required to a. Determine whether index futures is overpriced or under priced. b. Show risk-free arbitrage profits, if any, available to the investor irrespective of the value of the SENSEX on maturity with detail workings, assuming that the SENSEX on maturity can be i. 9900 orii. 10250 Solve fast please
Consider these futures market data for the June delivery S&P 500 contract, exactly one year from today. The S&P 500 index is at 1,950, and the June maturity contract is at F0 = 1,951.a. If the current interest rate is 2.5%, and the average dividend rate of the stocks in the index is 1.9%, what fraction of the proceeds of stock short sales would need to be available to you to earn arbitrage profits?b. Suppose now that you in fact have access to 90% of the proceeds from a short sale. What is the lower bound on the futures price that rules out arbitrage opportunities?c. By how much does the actual futures price fall below the no-arbitrage bound?d. Formulate the appropriate arbitrage strategy, and calculate the profits to that strategy.
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.

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