Question

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For the following questions the price of an S&P 500 Index Futures contract equals 250 ∙ Current S&P 500 Index Value. The margin requirement on each contract is $20,000.

Please answer the following questions:

1. At Yahoo! Finance identify the last traded value for the S&P 500 Index and the date it was last retrieved:

Last Traded S&P 500 Index Value	Date

2. At the CME Group site obtain the next four quarterly S&P 500 Index Futures quotes:

Month/Year	Last Price

1. Answer the following questions:
   1. Over the next four quarters are the S&P 500 Index Futures contract prices rising, falling, or flat? What does that suggest about the market expectations for the S&P 500 over the next year?
   2. Focusing on the longest dated S&P 500 Index Futures contract, i.e., the contract that expires last, what is the value of this contract?

Answer 1

a.) For Index Future S&P 500 one can have the strategy based on the price rising , Falling, remaining Flat market suggestion will be as follows

Quarter end price status	Strategy to be followed
Rising > $250	Sell the futures
Falling < $250	Buy the futures
Flat = $250	Hold (neither buy nor Sell)

b.) value of contract will be determined by forward value of portfolio at which investor invested at the price prevailed at the time of investment. Investor should have to keep initial margin at the time of investment. and in future contract every investor is required to maintain margin as decided by exchange authorities which id also called maintenance margin. which is generally some % of initial margin say 75% or 50%,

After reduction of the price the loss will be deducted from initial margin in this case it is $ 20000 and in case of gain it will be added to initial margin but when loss after adjustment goes below maintenance margin (say 75% of initial margin i.e. below 15000) then investor should restore the amount to Initial margin $ 20000, further value of the contract can be calculated by following formula

Where P = Spot Price

A= Forward Price

r = Rate of Interest

n= No of compounding

t= time