The August 2023 S&P 500 cash index is 1050 while the December S&P 500 futures index is 1000 and the contract value of each index point is $100. You are convinced the futures market will fall 20% by expiry. You are only prepared to buy or sell one futures contract. (i) Will you buy or sell a contract in the futures market? (ii) What is your profit (+) in dollars if you are correct? (iii) What is your profit (+)/loss (-) if the futures price on expiry is 1200?
The August 2023 S&P 500 cash index is 1050 while the December S&P 500 futures index is 1000 and the contract value of each index point is $100. You are convinced the futures market will fall 20% by expiry. You are only prepared to buy or sell one futures contract. (i) Will you buy or sell a contract in the futures market? (ii) What is your profit (+) in dollars if you are correct? (iii) What is your profit (+)/loss (-) if the futures price on expiry is 1200?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Transcribed Image Text:The August 2023 S&P 500 cash index is 1050 while the December S&P 500
futures index is 1000 and the contract value of each index point is $100. You are
convinced the futures market will fall 20% by expiry. You are only prepared to buy
or sell one futures contract.
(i) Will you buy or sell a contract in the futures market?
(ii) What is your profit (+) in dollars if you are correct?
(iii) What is your profit (+)/loss (-) if the futures price on expiry is 1200?
(iv) What is your profit (+)/loss (-) if the futures price on expiry is 700?
(v) Explain what is meant by "variation margin" on a futures contract.
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