Question
Tori Reynolds has been an avid stock market investor for years. She manages her portfolio fairly aggressively and likes toshort-sell whenever the opportunity presents itself.Recently,
Tori Reynolds has been an avid stock market investor for years. She manages her portfolio fairly aggressively and likes toshort-sell whenever the opportunity presents itself.Recently, she has become fascinated withstock-index futures, especially the idea of being able to play the market as a whole. Tori thinks the market is headeddown, and she decides to short sell someS&P 500stock-index futures. Assume she shorts 4 contracts at 1,354.81 and has to make a margin deposit of$19,077 for each contract. How much profit will shemake, and what will her return on invested capital be if the market does indeed drop so that the CME contracts are trading at 1 comma 1,307.07 by the time theyexpire? (The multiple on oneS&P 500 Index future contract is$250.)
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