21. Assume that the spot S&P500 index is 1000.00 on March 31 and that the September S&P500 futures contract on that day is 1020.00. This futures contra will mature in 180 days. The 180 day riskless rate is 4.00%. If the spot and Futures markets are in equilibrium, what does the market believe the future value of the dividend yield of the S&P500 stocks will be over the next 180 days? a. 0.5% b. 1.0% c. 1.5% d. 2.0% e. 2.5% 22. The risk-free interest rate is 5% per year and the dividend yield on the S&P500 index is 2% per year. This index is currently 1000.00 and the futures price for the contract maturing in four months is 1012.00. Assuming perfect capital markets, what arbitrage opportunity, if any, does this create? a. There is no arbitrage opportunity. b. The arbitrage is to short futures and buy shares underlying the index. c. The arbitrage is to buy futures and short shares underlying the index. 23. In equilibrium, a Stock Index futures contract will be in backwardation a. always b. never c. when investors, on average, expect stock prices to decline d. when convenience value is greater than (financing cost + storage cost) e. when the index dividend yield is greater than the riskless interest rate 24. In equilibrium, the gold futures market will be in backwardation a. never b. always c. when investors, on average, expect gold prices to decline d. when the convenience value is greater than the storage cost e. when the storage cost is greater than the financing cost 25. In equilibrium, the copper futures market will be in backwardation a. always b. never c. when investors, on average, expect copper prices to decline d. when the convenience value greater than (financing cost + storage cost) e. when the storage cost is greater than the financing cost 3 - 110 6 and 17. another sells a forward Assume that markets are perfect in the sense of being free from transaction costs and restrictions on short selling. The spot price of gold is $370 per sunce. Current interest rates are 10% compounded monthly. According to the Cost-of-Carry Model, approximately what should the price of a gold futures contract be if expiration is six months away? Assume that the cost of storing the gold is $0. (There 100 ounces of gold in a gold futures contract.) a. $375.72 b. $381.46 c. $388.89 d. $394.63 e. $399.95 19. Consider the information in question 18. Say however, that the cost of storing the gold is $0.15 per month per ounce all of which is paid at the maturity of the futures contract. What upper bound on the futures contract price is consistent with the Cost-of-Carry Model? That is, above what futures price can arbitrage first take place. a. same as the correct answer to question 18 b. the correct answer to question 18 - $0.15 c. the correct answer to question 18 + $0.15 d. the correct answer to question 18 - $0.90 e. the correct answer to question 18 + $0.90 20. The S&P500 stock index currently is 1000.00. The risk-free interest rate is 6% per year and the dividend yield on the index is 2% per year. Approximately what should be the equilibrium futures price on a contract which matures in six months? (You can use either continuous or discrete compounding.) a. 1005 d. 1020 e. 1030 ssume that markets a ts and restrictions on sh- Junce. Current interest rate Cost-of-Carry Model, appro contract be if expiration is so the gold is 50. (There 100 ou a. $375.72 b. $381.46 Use the following information to answer questions 15, 16, and 17. Today (t-0) one party goes short a futures contract and another sells a forwa contract on the same commodity. The prices at t=0, 1, 2, 3 where 3 -Tmaturity are: 0F3 = 100 F3 - 502F3 = 70 3F3 - 110 Assume that both contracts are held till maturity. Assume the commodity delivered at T=3 is taken from previously held inventory. Assume that initial margin is met with T-Bills. Consider any appropriate daily marking-to-the-market transfers but ignore interest paid or received on these transfers. 15. The cash flows to the trader in the futures market in periods 0, 1, 2, and 3 are respectively: a. +100, +50, -20, and +70 b. 0, +50, +70, +110. c. 0, +50, -20, and +70. d. 0, +50, -20, and +110. e. +100, -50, +20, and -70. 16. The cash flows to the trader in the forward market in periods 0, 1, 2, and 3 are respectively: a. +100, 0, 0, and -100. b. +100, +50, -20, and +70. c. 0, +50, -20, and +70. d. 0, 0, 0, +100. e. 0, 0, 0, +110. 17. If there is a time value to the marking-to-the-market cash flows, which of these parties would have been better off in this example? a. There is no difference. b. The trader in the forward market. c. The trader in the futures market. d. Need to know more risk information to answer this question. with your broker can not monitor -re leaving for 5 3. Assume there are only three possible outcomes for the spot price of a commodity which underlies a futures contract at the maturity of that futures contract. As seen today, these prices (i.e. those at the maturity of the futures contract) are 90, 100 or 110 and each may occur with probability 1/3, 1/3 and 1/3. Further, assume that futures market prices are set in accordance with the theory of (normal) contango. Which of the following is a potential price that could clear the market"? a. 90 b. 95 c. 100 d. 105 e. None of the above prices could possibly clear the market. 14. Assume that futures market prices are set in accordance with the theory of normal backwardation. At the point when positions are initially established by hedgers and speculators, their expectations about the profits for the positions they took in the futures market are: a. Hedgers and speculators both expect a loss. be b. Hedgers and speculators both expect a profit. c. Speculators expect a profit and hedgers expect a loss. d. Hedgers expect a profit and speculators expect a loss. e. Their expectations will be based on whether they consider the current futures price to be overvalued or undervalued. 8. Which is not a power given a. To fix the settlement b. To set limit moves on = prices outside those limits. c. To take the opposite si maturity when a long is not avail d. To force liquidation on e. To set minimum initial a. Buying a futures contract. of the following trades implies that ownership has been taken b. Selling a futures contract. c. Buying a stock. d. Shorting a stock. e. None of the above implies ownership The following transactions are the only ones made during the first futures contract trades. Answer question 2 based on this table. DAY TRANSACTION 1 A Long 30, B Short 30 2 A Long 55, C Short 55 3 A Long 45, D Short 45 4 C Long 50, A Sells 15,B Sells 35 2. The open interest on these days as it would appear in the WSJ is: a. 30, 55, 45, 50 b. 60, 110, 90, 100 c. 30, 85, 130, 115 d. 30, 85, 130, 180 e. None of the above. 3. A trader shorts 2 wheat futures contract (5000 bushels per contract) at $3.00 per bushel. Each contract has initial margin of $1500, and maintenance margin of $1000. What is the first price that would lead to a margin call? a. $2.89 per bushel. b. $2.99 per bushel. c. $3.01 per bushel. d. $3.09 per bushel. e. $3.11 per bushel 4. Which of the following studies show results which are the most optimistic with respect to the trading possibilities for speculators? a. Stewart b. Hieronymous c. Rockwell d. Dusak e. Elton-Gruber-Rentzler 13. Assume the commodity whi contract. As sec contract) are 90, 9. You initiated a short futures position at a price of 100 before leaving for school. Now you must be at school to take this exam so you can not monitor the progress of your position. What order could you place with your broker just before taking this exam to unwind your position if prices moved 10 points in your favor? a. Buy limit 90 b. Buy stop 90 c. Buy stop 110 d. Buy limit 110 e. Short stop 90 10. You went short a gold futures contract two weeks ago at $300/oz. The price is now $280/oz. You want to gain on any additional down movements but still try to protect at least a $10/oz profit. What order would you place with your broker now? a. Buy limit 270. b. Buy stop 270. c. Short limit 290. d. Buy stop 290. e. Short limit 270 11. You have no open silver futures position. The December Comex silver futures contract is now at $4.40/oz. You believe it will be in a downward trend if it hits $4.20/oz. What order would you place with your broker now? a. Buy stop $4.20. b. Short stop $4.30. c. Short limit $4.40. d. Short stop $4.20. e. Short limit $4.20. 12. A contract's volume on a given day was 500. If this contract trades in accordance with the concept of (pure) normal backwardation, then what positions would definitely not occur on that day? a. a hedger who goes long 0 contracts, a speculator who goes long 500 contracts b. a hedger who goes short 500 contracts, a speculator who goes long 300 contracts c. a hedger who goes long 0 contracts, a hedger who goes short 500 contracts d. a speculator who goes long 500 contracts, a speculator who goes short o contracts e. a hedger who goes long 500 contracts, a speculator who goes short 500 contracts has been taken? first 4 days a which is not a power given to a futures exchange? a. To fix the settlement price. b. To set limit moves on a futures contract so that it can not trade at prices outside those limits. c. To take the opposite side of a short position to facilitate delivery at maturity when a long is not available. d. To force liquidation only trading. e. To set minimum initial margin requirements. 6. A trader triples his money in year one. However, in year two he runs into trouble and loses 73%. Approximately what is his annual geometric mean return over this period? a. 113.5% b 63.5% c. - 17.0%. d. -10.0% e.-20.0% 7. Which of the following statements would the Elton-Gruber-Rentzler study agree with? a. Commodity fund prospectuses accurately reflected the future performance of the commodity fund. b. Returns on commodity funds were highly correlated with inflation c. Commodity funds had relatively small total transaction costs. d. On average, commodity funds produced large excess returns. e. Commodity funds took initial positions which were both long and short. 8. Which of the following statements is consistent with the results of the Bodie-Rosansky study? a. They support both the traditional Capital Asset Pricing Model and the theory of normal backwardation. b. They support the traditional Capital Asset Pricing Model but do not support the theory of normal backwardation c. They do not support the traditional Capital Asset Pricing Model but do support the theory of normal backwardation. d. They do not support either the traditional Capital Asset Pricing Model or the theory of normal backwardation