Question

One Chicago has just introduced a new single stock futures
contract on the stock of Brandex, a company that currently pays no
dividends. Each contract calls for delivery of 2,000 shares of
stock in one year. The T-bill rate is 3% per year.

**a.** If Brandex stock now sells at $230 per share,
what should the futures price be? **(Round your answer to 2
decimal places.)**

**b.** If the Brandex stock price drops by 1.0%, what
will be the change in the futures price and the change in the
investor's margin account? **(Input all amounts as positive
values. Do not round intermediate calculations. Round your answers
to 2 decimal places.)**

**c.** If the margin on the contract is $20,000, what
is the percentage return on the investor's position?
**(Negative amount should be indicated by a minus sign. Do
not round intermediate calculations. Round your answer to 2 decimal
places.)**

Answer #1

a. Futures Price = Spot Price * (1 + Risk Free Rate)

Futures Price = 230 * (1 + 0.03)

**Futures Price = $236.90**

b. New Spot Price = Current Spot Price * (1 - Drop) = 230 * 99% = $227.70

New Futures Price = New Spot Price * (1 + Risk Free Rate)

New Futures Price = $227.70 * (1 + 0.03)

**New Futures Price = $234.53**

Change in Investor Account = Shares * Difference in Futures Price = 2000 * (234.53-236.90)

**Change in Investor Account = Shares * Difference in
Futures Price = $4738**

**c.Percentage Return = Loss / Margin = -$4738/20000 =
-23.69%**

Please dont forget to upvote

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