Homework practice # 3

Chicago Board of Trade has just introduced a new single stock futures contract on the stock of Mango, company currently paying no dividends.Each contract calls for delivery of 1000 shares of stock in one year.The T-bill rate is 6% per year.

i. If Mango stock now sells at $120 per share, what should the futures price be?

ii. If the Mango stock price drops by 3%, what will be the change in the futures price and the change in the investor's margin account?

iii. If the margin on the contract is $12,000, what is the percentage return on the investor's position?

Thank you in advance.