# Question: You expect the stock market to increase but instead of

You expect the stock market to increase, but instead of acquiring stock, you decide to acquire a stock index futures contract. That index is currently 1120, and the contract has a value that is $50 times the amount of the index. The margin requirement is $2,500.

a. When you make the contract, how much must you put up?

b. What is the value of the contract based on the index?

c. If the value of the index rises 1 percent to 1131, what is the profit on the investment? What is the percentage earned on the funds you put up?

d. If the value of the index declines 1 percent to 1108, what percentage of your funds will you lose?

e. What is the percentage you earn (or lose) if the index falls to 1108?

a. When you make the contract, how much must you put up?

b. What is the value of the contract based on the index?

c. If the value of the index rises 1 percent to 1131, what is the profit on the investment? What is the percentage earned on the funds you put up?

d. If the value of the index declines 1 percent to 1108, what percentage of your funds will you lose?

e. What is the percentage you earn (or lose) if the index falls to 1108?

## Relevant Questions

Barbara buys 100 shares of DEM at $35 a share and 200 shares of GOP at $40 a share. She buys on margin and the broker charges interest of 10 percent on the loan. a. If the margin requirement is 55 percent, what is the ...A 45-year-old woman decides to put funds into a retirement plan. She can save $2,000 a year and earn 9 percent on this savings. How much will she have accumulated if she retires at age 65? At retirement how much can she ...You purchase a stock for $20 and expect its price to grow annually at a rate of 8 percent. a. What price are you expecting after five years? b. If the rate of increase in the price doubled from 8 percent to 16 per cent, ...Auntie Kitty sells her house for $200,000, which is then invested to earn 6 percent annually. If her life expectancy is 10 years, what is the maximum amount she can annually spend on a nursing home, doctors, and taxes? You expect to receive a payment of 1 million British pounds after six months. The pound is currently worth $1.60 (£1 = $1.60), but the future price is $1.56 (£1 = $1.56). You expect the price of the pound to decline (that ...Post your question