Question

# On January 1, you sell one April S&P 500 Index futures contract at a futures price...

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

1. 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

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