Investments

1)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 1,000 shares of stock in one year. The T-bill rate is 6% per year.

a. If Brandex stock now sells at $120 per share, what should the futures price be?

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b. If the Brandex stock price drops by 3%, what will be the change in the futures price and the change in the investor’s margin account?

c. If the margin on the contract is $12,000, what is the percentage return on the investors position?

2)Suppose the S&P 500 Index portfolio pays a dividend yield of 2% annually. The index currently is 1,200. The T-bill rate is 3%, and the S&P futures price for delivery in one year is $1,233. Construct an arbitrage strategy to exploit the mispricing and show that your profits one year hence will equal the mispricing in the futures market

.3)Desert Trading Company has issued $100 million worth of long-term bonds at a fixedrate of 7%. The firm then enters into an interest rate swap where it pays LIBOR and receives a fixed 6% on notional principal of $100 million.

What is the firms overall cost of funds?

4)The current level of the S&P 500 is 1,200. The dividend yield on the S&P 500 is 2%. The risk-free interest rate is 1%.

What should a futures contract with a one-year maturity be selling for?5) On January 1, you sold one March maturity S&P 500 Index futures contract at a futures price of 1,200. If the futures price is 1,250 on February 1, what is your profit? The contract multiplier is $250.

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