Question

- The current level of the S&P 500 index is 2,250. The dividend yield on the S&P 500 is 3%. The risk-free interest rate is 6% with continuous compounding. The futures price quote for a contract on the S&P 500 due to expire 6 months from now should be __________.

A) 2,774.30 B) 2,784.53 C) 2,768.63 D) 2,797.47

Answer #1

On January 1, you sell one April S&P 500 Index futures
contract at a futures price of 2,300. If the April futures price is
2,400 on February 1, your profit would be __________ if you close
your position. (The contract multiplier is 250.)
A)
$12,500 B) -$25,000 C) $25,000 D) -$12,500
The current level of the S&P 500 index is 2,350. The
dividend yield on the S&P 500 is 2%. The risk-free interest
rate is 5%with continuous compounding. The futures price quote for
a contract on...

The current level of the S&P 500 is 3000. The dividend yield
on the S&P 500 is 2%. The risk-free interest rate is 3%. What
should be the fair price of a one-year maturity futures
contract?
- Now assume that the futures contract is also traded for 3000. Is
contract over or underpriced?
- Construct arbitrage portfolio for taking advantage of such
price deviation. (refer to Chapter 17 slides and our in class work
posted on Canvas)
- Discuss whether...

The S&P 500 index current level is 3,000. The dividend yield
on the index is equal to the risk- free rate of interest. Given a
volatility of the index of 25%: a)
Computetheprobabilitythattheindexvaluein6monthsisgreaterthan3,300.
b) Compute the probability that the index value in 6 months is less
than 2700. c)
Computetheprobabilitythattheindexvaluein6monthsisbetween2700and3300.

The S&P 500 index current level is 3,000. The dividend yield
on the index is equal to the risk- free rate of interest. Given a
volatility of the index of 25%:
a)
Computetheprobabilitythattheindexvaluein6monthsisgreaterthan3,300.
b) Compute the probability that the index value in 6 months is less
than 2700.
c) Compute the probability that the index value in 6 months is
between 2700 and 3300.

The risk-free rate is 5% and the dividend yield on the S&P
500 index is 2%. Which of the following is correct when a futures
option on the index is being valued?
The futures price of the S&P 500 is treated like a stock
paying a dividend yield of 5%.
The futures price of the S&P 500 is treated like a stock
paying a dividend yield of 2%.
The futures price of the S&P 500 is treated like a stock...

The 6-month forward price of the S&P 500 Index is 1400 and
the volatility of the index is 15%. What is the price of a put
option that expires in 6 months if the strike price is 1450, risk
free rate is 5% (continuous). The dividend yield on the is 3%.

Smith holds a long position for a Stock index futures contract
which is four months from maturity. A stock index currently stands
at 350. The risk-free interest rate is 8% per annum (with
continuous compounding) and the dividend yield on the index is 4%
per annum.
a) What should the futures price for a four-month contract
be?
b) Suppose one month later the stock price is 351. The dividend
yield and index are the same. What is the value of...

The S&P 500 Index is currently
at 1,800. You manage a $9m indexed equity portfolio. The S&P
500 futures contract has a multiplier of $250.
If you are temporarily bearish on the stock market, how many
contracts should you sell to fully eliminate your exposure over the
next six months?
If T-bills pay 2% per six months and the semiannual dividend
yield is 1%, what is the parity value of the futures price?
Show that if the contract is fairly...

The value of the S&P500 stock index is 1,000. The risk-free
interest rate is 3% per annum with continuous compounding. The
dividend yield on the S&P 500 is 1%, and the volatility of the
index is 20% per annum. Find the delta on a 6 months put option
with strike price 950. Interpret your result.

Suppose the S&P 500 currently has a level of 960. One
contract of S&P 500 index futures has a size of $250× S&P
500 index. You wish to hedge an $800,000-portfolio that has a beta
of 1.2.
(A)In order to hedge the risk of your portfolio, should you long
the futures or short the futures? Why?
(B)How many S&P 500 futures contracts should you trade to
hedge your portfolio?

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