Consider a futures contract on an equity index. You have the following data.

• The equity index has an annualized, continuously compounded dividend yield of 3.28%.
• The futures contract expires in 9 months.
• The risk-free rate of interest with continuous compounding is 2.08% per annum.
• The spot market value of the index is 39.65.

What is theno-arbitrage futures priceof this equity index futures contract?

Do not round values at intermediate steps in your calculations. Enter your answerin dollars and cents to the penny, but omit the $ symbol and commas. For example, enter $1,234.56 as 1234.56 as your answer.

QUESTION 2

Consider a futures contract on the S&P 500 index. You have the following data.

The index has a continuously compounded dividend yield of 1.9% per annum.

The contract expires in 11 months.

The risk-free rate of interest with continuous compounding is 4.81% per annum.

The spot market value of the index is 1,765.61.

What is the no-arbitrage futures value of this equity index futures contract?

Do not round values at intermediate steps in your calculations. Enter your answer in dollars and cents to the penny, but omit the $ symbol and commas. For example, enter $1,234.56 as 1234.56 as your answer.

QUESTION 3

Today you buy 1,000 shares of in Exxon Mobil Corp. at $63.46 per share. After one quarter, the share price rises to $84.41 per share. At the end of this quarter, Exxon Mobil pays a cash dividend of $1.25 per share. Assume that you reinvest your cash dividends in Exxon Mobil stock.

What is the percent increase in the number of shares that you hold? (Assume that fractional shares are available.)

Do not round values at intermediate steps in your calculations. Enter your answerin percentto two decimal places, but omit the % symbol. For example, enter 5.38% as 5.38 in your answer.

QUESTION 4

Today you buy 1,000 shares of in Apple Co. at $122.25 per share. After one quarter, the share price rises to $141.13 per share. At the end of this quarter, Apple pays a cash dividend of $1.6 per share. Assume that you reinvest your cash dividends in Apple stock.

What is the annualized, continuously compounded dividend yield for Apple, given this information?

Do not round values at intermediate steps in your calculations. Enter your answerin percentto two decimal places, but omit the % symbol. For example, enter 5.38% as 5.38 in your answer.

QUESTION 5

You have the following market data.

The S&P 500 market index currently is 91.96.

The annualized, continuously compounded dividend yield on this index is 2.78%.

The futures contract on this index has an index multiplier of 100.

The annualized, continuously compounded risk-free rate is 3.05%.

The index futures contract that expires in 5 months has a futures price of 86.42.

What is the total net profit if you execute the arbitrage strategy with one futures contract?

Do not round values at intermediate steps in your calculations. Enter your answer in dollars and cents to two decimal places, but omit the $ symbol and commas. For example, enter $1,234.56 as 1234.56 as your answer.

QUESTION 6

You have the following market data.

• The Russell 2000 market index currently is 1,665.28.
• The annualized, continuously compounded dividend yield on this index is 2.29%.
• The futures contract on this index has an index multiplier of 50.
• The annualized, continuously compounded risk-free rate is 2.74%.
• The index futures contract that expires in 6 months has a futures price of 1,802.29.

What is thetotal net profitif you execute the arbitrage strategy with one futures contract?

Do not round values at intermediate steps in your calculations. Enter your answer in dollars and centsto two decimal places, but omit the $ symbol and commas. For example, enter $1,234.56 as 1234.56 as your answer.

QUESTION 7

Suppose that the market value of the S&P 500 index currently is 2,035. The futures contract has an index multiplier of 250. Suppose that the dividend yield on the index portfolio is 1.8% per year, and the risk-free rate is 0.5% per year; both rates are continuously compounded. The index futures contract that expires in 6 months has a futures price of 2,129. What is the general arbitrage strategy?

(A)Take a long position in the futures contract, sell short the index portfolio in the spot market, and invest the sales proceeds at the risk-free rate.

(B)Take a short position in the futures contract, buy the index portfolio in the spot market, and borrow at the risk-free rate to finance the purchase.

(C)Take a short position in the futures contract, sell short the index portfolio in the spot market, and invest the sales proceeds at the risk-free rate.

(D)Take a long position in the futures contract, buy the index portfolio in the spot market, and borrow at the risk-free rate to finance the purchase.

(E) No arbitrage opportunity currently exists.

QUESTION 8

Suppose that the market value of the Russell 2000 index currently is 1,583. The futures contract has an index multiplier of 50. Suppose that the dividend yield on the index portfolio is 1.1% per year, and the risk-free rate is 1.8% per year; both rates are continuously compounded. The index futures contract that expires in 5 months has a futures price of 1,605. What is the general arbitrage strategy?

(A) Take a short position in the futures contract, buy the index portfolio in the spot market, and borrow at the risk-free rate to finance the purchase.

(B) No arbitrage opportunity currently exists.

(C) Take a long position in the futures contract, buy the index portfolio in the spot market, and borrow at the risk-free rate to finance the purchase.

(D) Take a short position in the futures contract, sell short the index portfolio in the spot market, and invest the sales proceeds at the risk-free rate.

(E) Take a long position in the futures contract, sell short the index portfolio in the spot market, and invest the sales proceeds at the risk-free rate.

Answer rating: 100% (QA)

The detailed answer for the above question is provided below 1 To calculate the noarbitrage futures price of the equity index futures contract we can use the formula F S er q T Where F Futures price S ... View the full answer