The S&P 500 Index is currently at 2,000. You manage a $19 million indexed equity

Question

The S&P 500 Index is currently at 2,000. You manage a $19 million indexed equity portfolio. The S&P 500 futures contract has a multiplier of $250.

a. If you are temporarily bearish on the stock market, how many contracts should you sell to fully eliminate your exposure over the next six months?

Number of contracts            

b. If T-bills pay 4.0% per six months and the semiannual dividend yield is 1.8%, what is the parity value of the futures price? (Round your answer to 2 decimal places. Do not round intermediate calculations.)

Parity value

Explanation / Answer

a)Each future contract is 250 times the index and index is currently at 2000
so it is 250*2000=500000
No of contratcs=(19*10^6)/500000
=38
b)Future price=spot*e^(r-d)*t
=Spot price*1.01
=2000*1.01=2022.12

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