Question

# OneChicago has just introduced a single-stock futures contract on Brandex stock, a company that currently pays...

 OneChicago has just introduced a single-stock futures contract on Brandex stock, a company that currently pays no dividends. Each contract calls for delivery of 2,200 shares of stock in 1 year. The T-bill rate is 6% per year.

 a. If Brandex stock now sells at \$180 per share, what should the futures price be? (Round your answer to 2 decimal places. Omit the "\$" sign in your response.)

 Futures price \$

 b. If the Brandex price drops by 3%, what will be the new futures price and the change in the investor’s margin account? (Round intermediate calculations and "Futures price (new)" answer to 3 decimal places and other answer to the nearest dollar amount. Negative amount should be indicated by a minus sign. Omit the "\$" sign in your response.)

 Futures price (new) \$ Change in the investor’s margin account \$

 c. If the margin on the contract is \$11,100, what is the percentage return on the investor’s position? (Round intermediate calculations. Round your answer to 2 decimal places. Negative amount should be indicated by a minus sign. Omit the "%" sign in your response.)

 Percentage return on the investor’s position %

Futures price = S0 x (1 + r)t

where, S0 = current stock price, r = risk free rate of interest, t = time till maturity in years

a) Futures price = \$180 x (1 + 0.06)1 = \$190.80

b) New share price = \$180 - (3% x \$180) = \$174.60

New Futures price = \$174.60 x (1 + 0.06)1 = \$185.076

Change in investor's margin account = (New futures price - Old futures price) x No. of shares in a contract

or, Change in investor's margin account = (\$185.076 - \$190.80) x 2200 = (-)\$12,592.8 or (-)\$12,593

c) Percentage return = Change in account / margin on the contract = (-)\$12,593 / \$11,100 = (-)1.1345 or (-)113.45%