Question 5 The March 2024 S&P 500 cash index is 930 while the S&P 500 futures index is 950 and the contract value of each index point is $100. You are convinced the futures market will rise 10% by expiry. You are only prepared to buy or sell one futures contract. (i) Will you buy or sell a contract in the futures market? (2 marks) (ii) What is your profit (+) in dollars if you are correct? (2 marks) (iii) What is your profit (+)/loss (-) if the futures price on expiry is 1200? (2 marks) (iv) What is your profit (+)/loss (-) if the futures price on expiry is 700? (2 marks) (v) Explain what is meant by “initial margin” on a futures contract. (2 marks)
Question 5 The March 2024 S&P 500 cash index is 930 while the S&P 500 futures index is 950 and the contract value of each index point is $100. You are convinced the futures market will rise 10% by expiry. You are only prepared to buy or sell one futures contract. (i) Will you buy or sell a contract in the futures market? (2 marks) (ii) What is your profit (+) in dollars if you are correct? (2 marks) (iii) What is your profit (+)/loss (-) if the futures price on expiry is 1200? (2 marks) (iv) What is your profit (+)/loss (-) if the futures price on expiry is 700? (2 marks) (v) Explain what is meant by “initial margin” on a futures contract. (2 marks)
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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Question 5
The March 2024 S&P 500 cash index is 930 while the S&P 500 futures index is 950 and the contract value of each index point is $100. You are convinced the futures market will rise 10% by expiry. You are only prepared to buy or sell one futures contract.
(i) Will you buy or sell a contract in the futures market? (2 marks)
(ii) What is your profit (+) in dollars if you are correct? (2 marks)
(iii) What is your
(iv) What is your profit (+)/loss (-) if the futures price on expiry is 700? (2 marks)
(v) Explain what is meant by “initial margin” on a futures contract. (2 marks)
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