16.07.2022 - 04:10

# The multiplier for a futures contract on a stock market index is $250. The maturity of the contract is 1 year, the current level of the index is 1,360, and the risk-free interest rate is 0.6% per month. The dividend yield on the index is 0.3% per month. S Question: The multiplier for a futures contract on a stock market index is$250. The maturity of the contract is 1 year, the current level of the index is 1,360, and the risk-free interest rate is 0.6% per month. The dividend yield on the index is 0.3% per month. Suppose that after 1 month, the stock index is at 1,390.

a. Find the cash flow from the mark-to-market proceeds on the contract. Assume that the parity condition always holds exactly. (Round your final answer to the nearest dollar amount. Omit the ‘$’ sign in your response.) b. Find the holding-period return if the initial margin on the contract is$13,600.

a. The cash flow from the mark-to-market proceeds on the contract can be calculated by finding the change in the value of the futures contract after one month, and multiplying it by the multiplier of $250. The initial value of the futures contract is 1,360 x$250 = $340,000. After one month, the futures contract value is calculated by adding the interest earned on the initial margin and subtracting the dividends paid on the index during the month. Interest earned on the initial margin =$13,600 x 0.6% = $81.60 Dividends paid on the index = 1,360 x 0.3% =$4.08 The new value of the futures contract is therefore: $340,000 +$81.60 - $4.08 =$340,077.52 The change in the value of the futures contract is: $340,077.52 -$340,000 = $77.52 The cash flow from the mark-to-market proceeds on the contract is therefore:$77.52 x $250 =$19,380 (rounded to the nearest dollar) b. The holding-period return is the total return earned on the investment over the holding period, expressed as a percentage of the initial margin. The initial margin on the contract is $13,600. The final value of the futures contract after one month is$340,077.52. Therefore, the holding-period return can be calculated as: (Holding period return = (Final value - Initial margin) / Initial margin) x 100% = (($340,077.52 -$13,600) / $13,600) x 100% = 2,400.55% The holding-period return is extremely high due to the leverage provided by the futures contract. However, it is important to note that futures trading involves significant risk and is not suitable for all investors. Do you know the answer? Not sure about the answer? Find the right answer to the question The multiplier for a futures contract on a stock market index is$250. The maturity of the contract is 1 year, the current level of the index is 1,360, and the risk-free interest rate is 0.6% per month. The dividend yield on the index is 0.3% per month. S by subject Business, and if there is no answer or no one has given the right answer, then use the search and try to find the answer among similar questions.