(A)
Adequate information:
S&P 500 Index price = $2,000
Total value of indexed portfolio = $10 million
S&P futures contract has multiplier of 50
To evaluate:
Number of contracts you should sell to fully eliminate your exposure over next six months
Introduction:
Spot−future parity (or spot-futures parity) is a parity condition whereby, if an asset can be purchased today and held until the exercise of a futures contract, the value of the future should equal the current spot price adjusted for the cost of money, dividends, "convenience yield" and any carrying costs
(B)
Adequate information:
T-bills rate = 2% per six month
rf= 4% annual rate
Semiannual dividend yield = 1%
Hence D = 2% annual rate
t = 0.5
S0= 2000
To evaluate:
Parity value of the futures price
Introduction:
Spot−future parity (or spot-futures parity) is a parity condition whereby, if an asset can be purchased today and held until the exercise of a futures contract, the value of the future should equal the current spot price adjusted for the cost of money, dividends, "convenience yield" and any carrying costs
(C)
Adequate information:
T-bills rate = 2% per six month
rf= 4% annual rate
Semiannual dividend yield = 1%
Hence D = 2% annual rate
t = 0.5
S0= 2000
To evaluate:
Whether the contract is fairly priced
Introduction:
Spot−future parity (or spot-futures parity) is a parity condition whereby, if an asset can be purchased today and held until the exercise of a futures contract, the value of the future should equal the current spot price adjusted for the cost of money, dividends, "convenience yield" and any carrying costs
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Chapter 17 Solutions
CONNECT WITH LEARNSMART FOR BODIE: ESSE
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