31) On January 1, you sold one April S&P 500 Index futures contract at a futures
ID: 2764783 • Letter: 3
Question
31) On January 1, you sold one April S&P 500 Index futures contract at a futures price of 895. If the April futures price is 800 on February 1, your profit would be __________ if you close your position. (The contract multiplier is 250.)
a. $26,250 b. $23,750 c. $23,750 d. $26,250
26) A 1-year gold futures contract is selling for $1,645. Spot gold prices are $1,592 and the 1-year risk-free rate is 3%.
a. Based on the above data, which of the following set of transactions will yield positive riskless arbitrage profits?
b. Buy the futures contract, and buy the gold spot using borrowed money.
c. Buy the futures contract, and sell the gold spot and invest the money earned.
d. Buy gold spot with borrowed money, and buy the futures contract.
Buy gold in the spot with borrowed money, and sell the futures contract.
21) Deployment Specialists pays a current (annual) dividend of $1 and is expected to grow at 24% for two years and then at 5% thereafter. If the required return for Deployment Specialists is 9.5%, what is the intrinsic value of Deployment Specialists stock? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
20) On January 1, you sold one March maturity S&P 500 Index futures contract at a futures price of 1,650. If the futures price is 1,800 on February 1, what is your profit or loss? The contract multiplier is $250. (Input the amount as positive value.)
Intrinsic value $Explanation / Answer
The profit from short selling the futures will be Future price - spot price × lot size
= (895 - 800) × 250 = +23750 (option b)
31. Since the future price is higher than the spot price if we follow cash and carry model profit would be generated i.e selling futures now and buying the index spot by borrowing at the risk free rate. Option e
21.Intrinsic value is finding the value of stock today
value of dividend
year 1 is 1.24
year 2 is 1.24×(1.24) = 1.54
Year 3 is 1.54× 1.05= 1.61
Now value of share at end of year 2 = Dividend at year 3/(required rate of return - growth rate)
=1.61/(0.095- 0.05) = 35.87
Intrinsic value is present value of all cash flows
= 1.24/1.095+ 1.54/1.095^2 + 35.87/1.095^2
= 32.33
20. Since we have short the futures contract and on the contrary price rose we have suffered a loss. The loss is (1650 - 1800)× 250 = 37500 loss
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