Question
6. Mary Craft is expecting large-capitalization stocks to rally close to the end of the year. She is pessimistic, however, about the performance of small-capitalization
6. Mary Craft is expecting large-capitalization stocks to rally close to the end of the year. She is pessimistic, however, about the performance of small-capitalization stocks. She decides to go long one December futures contract on the Dow Jones Industrial Average listed at a price of 9,020 and short one December futures contract on the S&P Midcap 400 Index listed at a price of 369.40. The multiplier for a futures contract on the Dow is $10, and the multiplier for a futures contract on the S&P Midcap 400 is $500. When Craft closes her position towards the end of the year, the Dow and S&P Midcap 400 listed futures prices are 9,086 and 370.20, respectively. How much is the net gain or loss to Craft? Hint: The price of an index futures contract with a multiplier is the listed price times the multiplier.
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