a. Suppose that the annual interest rate is 1% and no dividend will be declared for the index constituent stocks in the coming quarter. The index is currently standing at 25,500.

i. Compute the index futures deliverable in exact 3 months. (4 marks)

ii. Suppose now the dividend yield of the index constituent stocks is 0.3% rather than 0%. Without doing any calculation, explain whether the index futures price is higher or lower than your answer in part (i). (4 marks)

b. A silver futures contract requires the seller to deliver 5,000 Troy ounces of silver. Henry sells four July silver futures contract at a price of $16 per ounce. The initial margin is $6,000 per contract and the maintenance margin is $2,500 per contract. What is the futures price per ounce at which Henry would receive a margin call? (6 marks)