Question 1

Assume the following:

(a) The spot index, the FBM KLCI is now 1,705 points; (b) The average annual dividend yield of the FBM KLCI is 1.0%; (c) The risk-free interest rate is 3% annualised; and (d) Index multiplier is RM50.

What would be the correct (or intrinsic or theoretical) price of a stock index futures (SIF) contract if it matures in 3 months?

Note: You may use either non-compounding interest cost-of-carry model OR compounding interest cost-of-carry model. Both formulas are acceptable. Enter your lanswer in at least four (4) decimal places for precision.

Question 2

A trader takes a view that March KLSE CI futures which are currently trading at 1188.60 are about to enter a downtrend.

1. Should the trader go long or short futures. (2 marks)

2. Assuming the trader maintains their original position until expiry and the cash settlement price is 1185.40, what will be the profit or loss? The contract size is RM50 per contract. (3 marks)