Problem

The multiplier for a futures contract on the stock market index is $250. The maturity of...

The multiplier for a futures contract on the stock market index is $250. The maturity of the contract is one year, the current level of the index is 800, and the risk-free interest rate is .5% per month. The dividend yield on the index is .2% per month. Suppose that after one month, the stock index is at 810.

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 one-month holding-period return if the initial margin on the contract is $10,000.

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Solutions For Problems in Chapter 17