The HKEx has just introduced a new single stock futures contract on the stock of BMX, a company that currently pays no dividends. Each contract calls for the delivery of 500 shares of stock in three months. The risk-free rate is 0.4% per month.

a. If BMX stock now sells at $63 per share, what should the futures price be according to spot-futures parity theorem? (4 marks)

b. Explain whether the futures price is higher or lower than in part (a) if BMX is a dividend paying stock. (3 marks)

c. Suppose the BMX stock price rises by 5% immediately. i. What will be the dollar change in the futures price? (3 marks) ii. If the margin on the contract is $4,000, what is the percentage return on the short position in futures contract? (4 marks)