a.
To compute: The transaction cost per dollar of stock controlled by the future contract supposing that the value of the S&P 500 stock index is 2000.
Introduction:
Transactions costs: When some trading is done, there is a 100% chance of incurring some expenses. The payment of these expenses can be termed as transaction cost. In terms of Finance, the expense such as broker’s commission is considered as one of the transaction costs.
b.
To compute: The transaction cost per ‘typical share’ controlled by the future contract when the average price of a share on the NYSE is about $40.
Introduction:
Future contract: It is supposed to be a legal agreement required to purchase or sell a commodity or asset in the future. This contract will specify the price at which the purchase or sale of the commodity or asset should be done at a specified time which will be agreed by the parties in advance.
c.
To compute: The number of times the transactions costs willoccur in future markets.
Introduction:
Future market: It can also be called as ‘futures exchange’. A future market is supposed to be a listed auctioned market where the traders purchase or sell various securities and other types of future contracts to be delivered on a future date specified in advance.
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