Suppose that you entered into a cash-and-carry like arrangement where you agreed to

sell 10 shares of Apple through a forward contract, where the forward price is the agreed

upon price. To hedge the sale, you use the futures arrangement from the previous problem.

What is your profit?

Based on following informations.

Risk free rate 7%

dividend rate 2%

The price of one share of Apple in 2 years is $179

You decide to buy 10 shares of Apple in two years through a futures exchange. The futures price is the forward price. The margin account requires that you

deposit 25% of the purchase price, and the account pays the risk free rate.

a) How much do you deposit into the margin account?

the forward price is solved as $175.73

Margin account is solved as 439.31

b) Settlement on this exchange occurs every six months. The futures price varies over that

time: the prices are 170, 180 and 173, at months 6, 12 and 18, respectively (you should

already know the price at 24 months). How much is in the margin account after the

settlement at 24 months (but before you empty the account)?

Balance is solved as 536.55.