Question
In: Finance
On September 12, a stock index futures contract was $432.7. The December 400 call was at...
On September 12, a stock index futures contract was $432.7. The December 400 call was at 26.25 and the put was at 3.25. The index was at 420.55. The futures and options expire on December 21. The discrete risk-free rate was 2.75%. Determine whether the futures and options are priced correctly in relation to each other. If they are not, construct a risk-free portfolio and show how it will earn a rate better than the risk-free rate.
Solutions
jeff jeffy answered 2 years agoRelated Solutions
Assume that on a recent day, the September 2019 S&P Index futures contract (i.e., the S&P...
Assume that on a recent day, the September 2019 S&P Index
futures contract (i.e., the S&P contract which expires in
September) closed at 2890, up 7 points on the day. The value of the
contract is set at 250 × the index.
When you bought the contract, you had to put up initial margin
of $35,000. The maintenance margin is $31,000. At what contract
price will you get a margin call?
Explain.
You are considering a futures position in the futures contract written on the STAR Index. This...
You are considering a futures position in the futures contract
written on the STAR Index. This is an index consisting of
technology stocks that specialise in inter-planetary travel, and
the current index level is 18,746. Assume that is possible to short
sell the index. The future value of dividends expected to be paid
over the next year is $376 and the 1-year interest rate is 4%.
d. It is also possible to trade in options contracts on the STAR
Index....
How would you use a forward contract, futures contract, and a call option contract on the...
How would you use a forward contract, futures contract, and a
call option contract on the US $ / Australian $ FX rate to hedge
the FX risk of paying a $A1 million bill in Australian Dollars for
a purchase to be delivered and paid in 90 days? What are the pro
and cons of using each FX derivative in general?
How would you use a forward contract, futures contract, and a call option contract on the...
How would you use a forward contract, futures contract,
and a call option contract on the US $ / Australian $ FX rate to
hedge the FX risk of paying a $A1 million bill in Australian
Dollars for a purchase to be delivered and paid in 90 days? What
are the pro and cons of using each FX derivative in
general?
Consider a three month futures contract on the S&P 500 index. The value of the index...
Consider a three month futures contract on the S&P 500
index. The value of the index is 1000; the dividend yield is 1% and
the three month interest rate is 4% continuously compounded. (a)
Explain how to compute the futures price making sure to define all
terms and assumptions. In particular carefully explain why the
formula holds. Then compute the fair futures price. (b) Suppose the
actual futures price is 1010.0. In great detail describe a strategy
that creates guaranteed...
The one-year futures price on a particular stock index portfolio is $1,825, the stock index is...
The one-year futures price on a particular stock index portfolio
is $1,825, the stock index is currently 1,800, the one-year
risk-free interest rate is 3%, and the year-end dividend that will
be paid on an $1,800 investment in the index portfolio is $25. a.
By how much is the contract mispriced? b. Formulate a
zero-net-investment arbitrage portfolio, and show how you can lock
in riskless profits equal to the futures mispricing. c. Now assume
that if you short-sell the stocks...
The National Stock Index is currently 573.70. A European call option, written on the index, with...
The National Stock Index is currently 573.70. A European call
option, written on the index, with strike 545.00, matures in 10
months. The index pays dividends at a rate of 1.00%, and has
volatility 25.00%. The (continuously compounded) interest rate is
9.30%. What is the option's gamma?
A futures contract on a 30-day Eurodollar time deposit is currently selling at an IMM index...
A futures contract on a 30-day Eurodollar time deposit is
currently selling at an IMM index of 95.75 percent. The IMM index
on a 30-day Eurodollar time deposit for immediate delivery is 95.10
percent. What is the basis?
please show work
For the following questions the price of an S&P 500 Index Futures contract equals 250...
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:
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
At the CME Group site obtain the next four quarterly S&P
500 Index Futures quotes:
Month/Year
Last Price...
Katie has a long position in one December beans futures contract. The contract size is 5,000...
Katie has a long position in one December beans futures
contract. The contract size is 5,000 bushels. Each contract
requires an initial margin (IM) deposit of $200 and a maintenance
margin (MM) of $120. Assume the initial contract price is
$2/bushel. a. If the contract price increases by 2 cents on Day 1,
calculate the gain or loss of Katie and the new balance (margin) at
the close of Day 1. b. Does Katie need to take some action at...
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