You expect the stock market to increase, but instead of acquiring stock, you decide to acquire a
Question:
You expect the stock market to increase, but instead of acquiring stock, you decide to acquire a stock index futures contract. That index is currently 58.8, and the contract has a value that is $500 times the amount of the index. The margin requirement is $2,500.
a. When you make the contract, how much must you put up?
b. What is the value of the contract based on the index?
c. If the value of the index rises 1 percent to 59.39, what is the profit on the investment? What is the percentage earned on the funds you put up?
d. If the value of the index declines 1 percent to 58.2, what percentage of your funds will you lose?
e. What is the percentage you earn (or lose) if the index falls to 53.8?
Step by Step Answer:
Basic Finance An Introduction to Financial Institutions, Investments and Management
ISBN: 978-1285425795
11th Edition
Authors: Herbert B. Mayo