Question 5 (10 marks) The Hong Kong Futures Exchange has just launched a futures contract on the HJS common stock. The HJS currently pays no dividends. Each futures contract calls for delivery of 1,000 shares of HJS stock. The HIBOR is 6% annually. HJS stock currently sells at $60 per share. Assume that there are no transaction costs.

a. Suppose Jacky sells a 1-month HJS futures contract now. According to spot-futures parity, what is the futures price? (4 marks)

b. Suppose the stock price of HJS immediately falls by 5% after Jacky sold the futures contract. If the margin on the futures contract is $5,000, what will be the percentage return on Jackys position? (6 marks)