Question

Suppose the S&P 500 index futures price is currently 1000. One contract of S&P 500 index futures has a size of $250× S&P 500 index. You wish to purchase four contracts of futures on margin. Suppose that the initial margin is 10%. Your position is marked to market daily. The interest earnings from the margin account can be ignored.

(A) What is the notional value of your position?

(B) What is the dollar amount of initial margin?

(C) What is your actual return if the index price increases to 1010 one day from now? (Suppose you deposit the initial margin into your margin account as an initial investment.)

(D)If the maintenance margin is 80% of initial margin, what is the greatest S&P 500 index futures price one day from now at which you will receive a margin call?

Answer #1

(A) The notional value of your position = Number of contracts x Multiplier x Price of one index future = 4 x 250 x 1,000 = $ 1,000,000

(B) the dollar amount of initial margin = Initial margin xThe notional value of your position = 10% x 1,000,000 = $ 100,000

(C) Mark to market gain = Number of contracts x Multiplier x (P1 - P0) = 4 x 250 x (1,010 - 1,000) = $ 10,000

(D) If P is that price then,

Initial margin + (P - 1,000) x N x Multiplier ≤ Maintenance Margin = 80% x Initial margin

Or, 100,000 + (P - 1,000) x 4 x 250 ≤ 80% x 100,000

hence, P ≤ 1000 - 20% x 100,000 / (4 x 250) = 980

Hence, the greatest S&P 500 index futures price one day from now at which you will receive a margin call = 980

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?

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 margin requirement on the S&P 500 futures contract is
8%, and the stock index is currently 2,000. Each contract has a
multiplier of $50.
a. How much margin must be put up for each
contract sold?
b. If the futures price falls by 2% to 1,960, what
will happen to the margin account of an investor who holds one
contract? (Input the amount as a positive
value.)
c-1. What will be the investor's percentage return
based on the amount...

Suppose the futures price is 1100 and you wish to acquire a $2.2
million position in the S&P index.
(i) How many futures contracts will you buy or sell, if the current
value of one futures contract is $275,000?
(ii) Suppose that there is a10% margin in weekly settlement. How
much will you lose if the S&P futures price drops by 1, to
1099?
(iii) Suppose that over the first week, the futures price drops
72.01 points to 1027.99. On...

Suppose the value of the S&P 500 Stock Index is currently
$1,750. If the one-year T-bill rate is 5.3% and the expected
dividend yield on the S&P 500 is 4.6%. a. What should the
one-year maturity futures price be? (Do not round intermediate
calculations.) Futures price $ b. What would the one-year maturity
futures price be, if the T-bill rate is less than the dividend
yield, for example, 3.6%? (Do not round intermediate calculations.)
Futures price

Suppose the value of the S&P 500 Stock Index is currently
$1,750. If the one-year T-bill rate is 5.3% and the expected
dividend yield on the S&P 500 is 4.6%.
a. What should the one-year maturity futures
price be? (Do not round intermediate calculations.) calculate
Futures price $
b. What would the one-year maturity futures
price be, if the T-bill rate is less than the dividend yield, for
example, 3.6%? (Do not round intermediate calculations.)calculate
Futures price $

The S&P 500 is currently valued at $2,700 and the 1-year
Mini Future contract has a price of $2,767. The risk free rate is
2.5% per annum and the S&P 500 dividend yield is 0.5% per
annum. You are managing a portfolio that is worth $10 million and
has a beta of 1.75. (Remember E-mini S&P 500 Future contracts
are 50 x price)
a. What position in futures contracts on the S&P 500 is
necessary to hedge the portfolio?
b....

a)On Dec. 4, 2019, the nearby S&P 500 contract was trading
at 3114.50. What was the total value represented by one S&P
contract as of the day of that close?
b) If you think the S&P index is likely to go up in the near
future, would you buy or sell an S&P futures contract?
c) Assume that in two weeks, the contract closes at 3200. What
would be the dollar amount of your profit or loss, given the action...

a)On Dec. 4, 2019, the nearby S&P 500 contract was trading
at 3114.50. What was the total value represented by one S&P
contract as of the day of that close?
b) If you think the S&P index is likely to go up in the near
future, would you buy or sell an S&P futures contract?
c) Assume that in two weeks, the contract closes at 3200. What
would be the dollar amount of your profit or loss, given the action...

The S&P 500 is currently valued at $2,700 and the 1-year
Mini Future contract has a price of $2,767. The risk free rate is
2.5% per annum and the S&P 500 dividend yield is 0.5% per
annum. You are managing a portfolio that is worth $10 million and
has a beta of 1.75. (Remember Emini S&P 500 Future contracts
are 50 x price) What position in futures contracts on the S&P
500 is necessary to hedge the portfolio so our...

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 2 minutes ago

asked 16 minutes ago

asked 17 minutes ago

asked 18 minutes ago

asked 28 minutes ago

asked 32 minutes ago

asked 34 minutes ago

asked 35 minutes ago

asked 35 minutes ago

asked 42 minutes ago

asked 54 minutes ago

asked 1 hour ago