Question 2 (25 marks) 1. OneChicago has just introduced a single-stock futures contract on Brandex stock, a company that currently pays no dividends. Each contract calls for delivery of 1,000 shares of stock in 1 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? (5 marks) b. If the Brandex price drops by 3%, what will be the change in the futures price and the change in the investor's margin account? (5 marks) C. If the margin on the contract is $12,000, what is the percentage return on the investor's position? (5 marks) 2. The S&P portfolio pays a dividend yield of 1.5% annually. Its current value is 2,050. The T- bill rate is 4.7%. Suppose the S&P futures price for delivery in 1 year is 2,120. Construct an arbitrage strategy to exploit the mispricing and show that your profits 1 year hence will equal the mispricing in the futures market. (10 marks

Question 2 (25 marks) 1. OneChicago has just introduced a single-stock futures contract on Brandex stock, a company that currently pays no dividends. Each contract calls for delivery of 1,000 shares of stock in I 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? ( 5 marks) b. If the Brandex price drops by \3, what will be the change in the futures price and the change in the investor's margin account? (5 marks) c. If the margin on the contract is \\( \\$ 12,000 \\), what is the percentage return on the investor's position? (5 marks) 2. The S\\&P portfolio pays a dividend yield of \1.5 annually. Its current value is 2.050 . The \\( T \\). bill rate is \4.7. Suppose the SEP futures price for delivery in 1 year is 2,120 . Construct an arbitrage strategy to exploit the mispricing and show that your profits 1 year hence will equal the mispricing in the futures market. (10 marks)