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.

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Answer 1

Question

Chapter 23, Problem 6PS

a.

Summary Introduction

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.

Summary Introduction

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.

Summary Introduction

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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Students have asked these similar questions

An index level of 1,000, what is the value of each contract? If a long stock index futures position on S& P 500 index futures at 1, 051 and has an index of 1, 058 at the settlement date, how much would be the trader’s gain? Complete Solution.

The stock index future contract involves buying and selling the stock index for a specified price at a specified date. How much will a contract price be if it involves the S&P SmallCap index with a current value of P200 times the index for 1700 points?* a. P340,000 b. P314,000 c. P8,500 d. P342,000

A company has $20 million portfolio with beta of 0.8. It would like to use futures contracts on the S&P 500 to hedge its risk. The index is currently standing at 1050, and each contract is for delivery of $250 per index points. What is the hedge that minimises its risk? What should the company do if it wants to reduce the beta of the portfolio to 0.2? a. Buying 76 futures contracts minimises the risk. To reduce the beta to 0.2, the company should instead buy 61 contracts. b. Buying 61 futures contracts minimises the risk. To reduce the beta to 0.2, the company should instead buy 46 contracts. c. Selling 76 futures contracts minimises the risk. To reduce the beta to 0.2, the company should instead sell 61 contracts. d. Selling 61 futures contracts minimises the risk. To reduce the beta to 0.2, the company should instead sell 46 contracts.

Answer 2

Question

Chapter 23, Problem 6PS

a.

Summary Introduction

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.

Summary Introduction

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.

Summary Introduction

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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Answer 3

Question

Chapter 23, Problem 6PS

a.

Summary Introduction

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.

Summary Introduction

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.

Summary Introduction

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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Answer 4

Question

Chapter 23, Problem 6PS

a.

Summary Introduction

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.

Summary Introduction

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.

Summary Introduction

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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Answer 5

Chapter 23, Problem 6PS

a.

Summary Introduction

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.

Summary Introduction

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.

Summary Introduction

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.

Answer 6

Chapter 23, Problem 6PS

a.

Summary Introduction

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.

Answer 7

Chapter 23, Problem 6PS

a.

Summary Introduction

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.

Answer 8

b.

Summary Introduction

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.

Answer 9

b.

Summary Introduction

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.

Answer 10

c.

Summary Introduction

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.

Answer 11

c.

Summary Introduction

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.

Answer 12

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Answer 13

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Answer 14

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Answer 15

Ch. 23 - Prob. 1PS Ch. 23 - Prob. 2PS Ch. 23 - Prob. 3PS Ch. 23 - Prob. 4PS Ch. 23 - Prob. 5PS Ch. 23 - Prob. 6PS Ch. 23 - Prob. 7PS Ch. 23 - Prob. 8PS Ch. 23 - Prob. 9PS Ch. 23 - Prob. 10PS

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