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Coco is enrolled at the University of Melbourne and has just completed Principles of Finance where, among other things, she has learnt about the existence
Coco is enrolled at the University of Melbourne and has just completed Principles of Finance where, among other things, she has learnt about the existence of the futures market. Coco has a better understanding of the spot market and she is not quite sure about how investments in the two markets would compare. Building on her knowledge from Principles, Coco would like to invest in the ASX 200, as a broadly diversified portfolio. She approaches her friend Iga and asks her "Should I consider investing in the ASX200 using index futures contracts? Would I get a better or worse return than if I invested through a passive index fund on the ASX?" Iga is also a student at Melbourne Uni and has successfully completed Derivative Securities. Using her Derivatives expertise, Iga replies: "Well, as long as you hold your, say, long futures position for a relatively short time so that interest rates do not change and the dividend yield does not change, then it doesn't matter which one you choose: the return that you get from your index futures position is going to match the excess return on the index fund over the same time period". Would you agree with Iga's argument? Why or why not? Coco is enrolled at the University of Melbourne and has just completed Principles of Finance where, among other things, she has learnt about the existence of the futures market. Coco has a better understanding of the spot market and she is not quite sure about how investments in the two markets would compare. Building on her knowledge from Principles, Coco would like to invest in the ASX 200, as a broadly diversified portfolio. She approaches her friend Iga and asks her "Should I consider investing in the ASX200 using index futures contracts? Would I get a better or worse return than if I invested through a passive index fund on the ASX?" Iga is also a student at Melbourne Uni and has successfully completed Derivative Securities. Using her Derivatives expertise, Iga replies: "Well, as long as you hold your, say, long futures position for a relatively short time so that interest rates do not change and the dividend yield does not change, then it doesn't matter which one you choose: the return that you get from your index futures position is going to match the excess return on the index fund over the same time period". Would you agree with Iga's argument? Why or why not
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