Hellpp fasttt 5DMcGranProblem 22-14The multiplier for a futures contract on a stock market index is $75. The maturity of the contract is 1 year, the current level of the indexis 1,850, and the risk-free interest rate is 0.5% per month. The dividend yield on the index is 0.3% per month. Suppose that after 1month, the stock index is at 1,870,a. Find the cash flow from the mark-to-market proceeds on the contract. Assume that the parity condition always holds exactly (Do notround intermediate calculations. Round your answer to 2 decimal places.)Answer is complete but not entirely correct.Cash flow$15.00b. Find the holding-period return if the initial margin on the contract is $5,500. (Do not round intermediate calculations. Round youranswer to 2 decimal places.)Answer is complete but not entirely correct.Hoiding period lum0.020< PrevSoNextReturn to question

Initial future price (F0) = C0(1+r-y)n = $1,850*(1+0.005-0.003)12 = $1,850*1.02426 = $1,894.89 In…

Answered: The multiplier for a futures contract…

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter5: Financial Options

Section: Chapter Questions

Problem 4MC

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There is a futures contract available on a dividend paying stock. The current stock price is $7.25 and a dividend of $2 will be paid after 6 months. The interest rate is 12% per annum (assuming discrete compounding). The fair price of the futures for delivery one year ahead is closest to which of the values below? Question 8Answer a. $5.90 b. $8.12 c. $5.50 d. $10.40
D6 Finance A stock price is currently $30. During each two-month period for the next four months it is expected to increase by 8% or reduce by 6%. The annual risk-free interest rate is 6%. Use a two-step tree to calculate the value of a derivative that pays off Max[(30-Sr),0]^2 where St is the stock price in four months. If the derivative is American-style, should it be exercised early?
Question 3 The quoted futures price corresponds to a forward rate of 8% per annum with quarterly compounding and actual/360. The parameters for Black’s model are therefore: Fk = 0.08, K= 0.08, R= 0.075, σk = 0.15, tk = 0.75 and P(0,tk+1) = e-0.075*1 =0.9577 Use these information to estimate the call price.
Question 3 The quoted futures price corresponds to a forward rate of 8% per annum with quarterly compounding and actual/360. The parameters for Black’s model are therefore: Fk = 0.08, K= 0.08, R= 0.075, σk = 0.15, tk = 0.75 and P(0,tk+1) = e-0.075*1 =0.9577 Use these information to estimate the call price with mathematical formulars.
A stock index currently stands at 350. The risk-free interest rate is 6% per annum (with continuous compounding) and the dividend yield on the index is 1.2% per annum. What should the futures price for an eight-month contract be? O a. $ 364.28 O b. $ 338.98 O c. $ 355.65 O d. $ 361.38
The multiplier for a futures contract on a stock market index is $50. The maturity of the contract is 1 year, the current level of the index is 1,800, and the risk-free interest rate is .5% per month. The dividend yield on the index is .2% per month. Suppose that after 1 month, the stock index is at 1,820.a. Find the cash flow from the mark-to-market proceeds on the contract. Assume that the parity condition always holds exactly.b. Find the holding-period return if the initial margin on the contract is $5,000
Question 8 The January 2023 S&P 500 cash index is 3950 points while the S&P 500 futures March 2023 index is 4000 and the contract value of each index point is $150. 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 4400? (iv) What is your profit (+)/loss (-) if the futures price on expiry is 3700?
Question 8 The January 2023 S&P 500 cash index is 3950 points while the S&P 500 futures March 2023 index is 4000 and the contract value of each index point is $150. 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 4400? (iv) What is your profit (+)/loss (-) if the futures price on expiry is 3700? (v) Explain how a fund manager that is manging $100 million pension fund that track the S&P 500 index who is concerned the spot index will be 3200 on date of expiration of the futures contract in March 2023 can hedge the risk to the pension fund. Explain the net position if on the March expiration the index reads 3000 or 4500.
Put–Call Parity The current price of a stock is $33, and the annual risk-free rate is 6%. A call option with a strike price of $32 and with 1 year until expiration has a current value of $6.56. What is the value of a put option written on the stock with the same exercise price and expiration date as the call option?
A Treasury bond futures contract has a settlement price of 89’08. What is the implied annual yield?
Aa.1 The current price of stock XYZ is 100. In one year, the stock price will either be 120 or 80. The annually compounded risk-free interest rate is 10%. i. Calculate the no-arbitrage price of an at-the-money European put option on XYZ expiring in one year. ii. Suppose that an equivalent call option on XYZ is also trading in the market at a price of 10. Determine if there is a mis-pricing. If there is a mis-pricing, demonstrate how you would take advantage of the arbitrage opportunity.
QUESTION 14 The table below shows rates on zero-coupon Treasury securities: Maturity (years) Yield 1 3.1% 2 4.3% 3 5.8% Calculate the expected one year rate at the end of the first year (2f1). Round your final answer to two decimal places and use percentage format (1.23% should be entered as 1.23)

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