Chapter 17, Problem 20PS

Summary Introduction

(A)

Adequate information:

Current level of index = 2000

Risk-free interst rate = 0.2% per month

Dividend-yield on the index = 0.1% per month

Multiplier = $50

After one month, expected stock index = 2040

To evaluate:

Cash flow from mark-to-market proceeds on the contract

Introduction:

Mark to market (MTM) is a measure of the fair value of accounts that can change over time, such as assets and liabilities. Mark to market aims to provide a realistic appraisal of an institution's or company's current financial situation

Summary Introduction

(B)

Adequate information:

Initial margin on the contract = $5000

To evaluate:

Holding period return

Introduction:

Holding period return is the total return received from holding an asset or portfolio of assets over a period of time, generally expressed as a percentage. Holding period return is calculated on the basis of total returns from the asset or portfolio (income plus changes in value).