What is a FUTURES CONTRACT and what are its key components?

You are evaluating five different investments, all of which involve an upfront outlay of cash. Each investment will provide a single cash payment back to you in the future. Details of each investment appears here:. Calculate the IRR of each investment. State your answer to the nearest basis point (i.e., the nearest 1/100th of 1%, such as 3.76%). The yield for investment A is %. (Round to two decimal places.) Initial Future Investment Investment Value Im A $1,900 $4,029 B $9,600 $13,121 C $500 D $3,200 E $5,900 Data table $1,759 $4,139 $9,079 End of Year 11 9 18 3 12 I X

Describe how the price of a futures contract is established in theory, with reference to arbitrage.

(a) Outline in detail what is meant by a forward and futures contract. Evaluate the relationship between futures price and spot price, and give reasons to justify the necessity for exchange margin accounts.   (b) Explain the concept of cost of carry model and its role in the pricing of financial futures contracts.