A fund that generated an ETF that replicates the Dow Jones wants to dispose of that position within 9 months. The stocks that make up this index have been determined to provide an annual dividend yield of 3.25% (continuous capitalization), the current value of the Dow Jones is 20,596 units and the cetes rate is 4.5%.

1. What price would the derivative have upon signing?

2. What value will the futures contract have if 6 months later and the Dow Jones increases to 20,625 units?

3. What is the position in the cash market?

4. What is the risk you take?

5. What position should you assume in the derivatives market?

6. What is the delivery price (strike) that is agreed upon at the time of signing the contract?

7. What value does the contract assume for changes in some variables, as requested in the exercise?

Answer rating: 100% (QA)

1 To determine the initial price of the futures contract we can use the formula F0 S0erqT Where S0 current value of the Dow Jones index 20596 r cetes ... View the full answer