Question

- 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 S&P 500 due to expire 6 months from now should be __________.

A) 2,374.30 B) 2,385.52 C) 2,394.60 D) 2,409.49

Answer #1

**The profit or loss is computed as shown
below:**

**= (Selling price - Price on Feb 1) x contract
multiplier**

= ($ 2,300 - $ 2,400) x 250

**= - $ 25,000**

**So, the correct answer is option B.**

**The future price is computed as shown
below:**

**= Spot price x e ^{(risk free rate of interest -
dividend yield) x 6 / 12}**

= 2,350 x 2.71828 ^{(0.05 - 0.02) x 0.50}

= 2,350 x 2.71828 ^{0.015}

**= 2,385.52 Approximately**

**So, the correct answer is option B.**

Feel free to ask in case of any query relating to this question

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