Francesco has been investing in the Italian Stock Exchange, based in Milan, for a long time. He
Question:
Francesco has been investing in the Italian Stock Exchange, based in Milan, for a long time. He is an aggressive investor and likes to short sell whenever he sees an opportunity. Recently, he became fascinated with the idea of being able to play the entire stock market. He thinks that because economic fundamentals in Europe have been deteriorating, he should short sell the FTSE MiB Index futures. Assume he shorts five contracts at 21,140 and has to make a margin deposit of €6,000 for each contract. How much profit will he make, and what will be his return on invested capital if the market does indeed drop so that the FTSE MiB contracts are trading at 18,000 by the time they expire (each point is equal to €5)?
Step by Step Answer:
Fundamentals Of Investing
ISBN: 9780135175217
14th Edition
Authors: Scott B. Smart, Lawrence J. Gitman, Michael D. Joehnk