FUND.OF CORPORATE FINANCE(LL)
11th Edition
ISBN: 9781260443714
Author: Ross
Publisher: MCG
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Chapter 23, Problem 5QP
Futures Options Quotes [LO4] Refer to Table 23.2 in the text to answer this question. Suppose you purchase the June 2014 put option on corn futures with a strike price of $5.10. Assume your purchase was at the last price. What is the total cost? $uppose the price of corn futures is $4.91 per bushel at expiration of the option contract. What is your net profit or loss from this position? What if com futures prices are $5.18 per bushel at expiration?
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Question 5
The March 2024 S&P 500 cash index is 930 while the S&P 500 futures index is 950 and the contract value of each index point is $100. You are convinced the futures market will rise 10% by expiry. You are only prepared to buy or sell one futures contract.
(i) Will you buy or sell a contract in the futures market? (2 marks)
(ii) What is your profit (+) in dollars if you are correct? (2 marks)
(iii) What is your profit (+)/loss (-) if the futures price on expiry is 1200? (2 marks)
(iv) What is your profit (+)/loss (-) if the futures price on expiry is 700? (2 marks)
(v) Explain what is meant by “initial margin” on a futures contract. (2 marks)
The January 2023 S&P 500 cash index is 3950 points while the S&P 500 futures March 2023 index is 4000 and the contract value of each index point is $150. You are convinced the futures market will fall 20% by expiry. You are only prepared to buy or sell one futures contract.
(i) Will you buy or sell a contract in the futures market? (ii) What is your profit (+) in dollars if you are correct? (iii) What is your profit (+)/loss (-) if the futures price on expiry is 4400?
(iv) What is your profit (+)/loss (-) if the futures price on expiry is 3700?
(v) Explain how a fund manager that is manging $100 million pension fund that track the S&P 500 index who is concerned the spot index will be 3200 on date of expiration of the futures contract in March 2023 can hedge the risk to the pension fund. Explain the net position if on the March expiration the index reads 3000 or 4500.
6.Assume we have the following information:
Spot price : 1146.00
Actual futures price : 1192.50
Theoretical futures price : 1160.00
Maturity : 3 months
a. Is the futures fairly priced?
Suppose an arbitrageur wish to take advantage of this opportunity. He has RM10,000,000.00 which he can fund at the current risk-free rate of 5%.
b. What should he do?
c. How many contracts should be shorted or bought?
d. Assume that the arbitrageur maintains this position until contract expiry at which time futures and cash prices have converged to 1165. How much profit would he makes?
Chapter 23 Solutions
FUND.OF CORPORATE FINANCE(LL)
Ch. 23.1 - Prob. 23.1ACQCh. 23.1 - Prob. 23.1BCQCh. 23.2 - Prob. 23.2ACQCh. 23.2 - Prob. 23.2BCQCh. 23.3 - What is a forward contract? Describe the payoff...Ch. 23.3 - Prob. 23.3BCQCh. 23.4 - Prob. 23.4ACQCh. 23.4 - Prob. 23.4BCQCh. 23.5 - Prob. 23.5ACQCh. 23.5 - Prob. 23.5BCQ
Ch. 23.5 - Prob. 23.5CCQCh. 23.6 - What is a futures option?Ch. 23.6 - Prob. 23.6CCQCh. 23 - Keith is preparing a graph that compares the value...Ch. 23 - Prob. 23.3CTFCh. 23 - Prob. 23.6CTFCh. 23 - Prob. 1CRCTCh. 23 - Prob. 2CRCTCh. 23 - Prob. 3CRCTCh. 23 - Prob. 4CRCTCh. 23 - Prob. 5CRCTCh. 23 - Prob. 6CRCTCh. 23 - Options [LO4] Explain why a put option on a bond...Ch. 23 - Prob. 8CRCTCh. 23 - Prob. 9CRCTCh. 23 - Prob. 10CRCTCh. 23 - Prob. 11CRCTCh. 23 - Hedging Exchange Rate Risk [LO2] If a U.S. company...Ch. 23 - Hedging Strategies [LO1] For the following...Ch. 23 - Prob. 14CRCTCh. 23 - Prob. 15CRCTCh. 23 - Prob. 16CRCTCh. 23 - Prob. 1QPCh. 23 - Prob. 2QPCh. 23 - Futures Options Quotes [LO4] Refer to Table 23.2...Ch. 23 - Prob. 4QPCh. 23 - Futures Options Quotes [LO4] Refer to Table 23.2...Ch. 23 - Prob. 6QPCh. 23 - Prob. 7QPCh. 23 - Interest Rate Swaps [LO3] ABC Company and XYZ...Ch. 23 - Prob. 9QPCh. 23 - Prob. 10QPCh. 23 - Prob. 1MCh. 23 - Prob. 2MCh. 23 - Prob. 3MCh. 23 - Prob. 4MCh. 23 - Prob. 5MCh. 23 - Are there any possible risks Joi faces in using...
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