Question

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

2. 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