The S&P 500 spot price is $4,570. The futures price with 6-months delivery is $4,895. The risk-less rate of return for 6-months is 3.68%. You enter into ONE futures contract to deliver ONE index portfolio in 6-months and receive $4,895. Whatever profit you make, you transfer to today. How much $ profit will you have today? Hint: Borrowing money today and selling risk-less bonds are equivalent actions. Whatever $ profit you may make from the above transactions, you have to bring back to today by borrowing at the risk-less rate. Assume no transactions costs (you can borrow and lend at the risk-less rate etc.).
The S&P 500 spot price is $4,570. The futures price with 6-months delivery is $4,895. The risk-less rate of return for 6-months is 3.68%. You enter into ONE futures contract to deliver ONE index portfolio in 6-months and receive $4,895. Whatever profit you make, you transfer to today. How much $ profit will you have today? Hint: Borrowing money today and selling risk-less bonds are equivalent actions. Whatever $ profit you may make from the above transactions, you have to bring back to today by borrowing at the risk-less rate. Assume no transactions costs (you can borrow and lend at the risk-less rate etc.).
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
Problem 1PS
Related questions
Question
The S&P 500 spot price is $4,570. The futures price with 6-months delivery is $4,895. The risk-less
You enter into ONE futures contract to deliver ONE index portfolio in 6-months and receive $4,895. Whatever profit you make, you transfer to today. How much $ profit will you have today?
Hint: Borrowing money today and selling risk-less bonds are equivalent actions.
Whatever $ profit you may make from the above transactions, you have to bring back to today by borrowing at the risk-less rate.
Assume no transactions costs (you can borrow and lend at the risk-less rate etc.).
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 3 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education