If each futures contract costs $25 to trade with a discount broker, how much is

Question

If each futures contract costs $25 to trade with a discount broker, how much is the transaction cost per dollar of stock controlled by the futures contract? (Round your answer to 4 decimal places. Omit the "%" sign in your response.)

If the average price of a share on the NYSE is about $40, how much is the transaction cost per “typical share” controlled by one futures contract? (Round your answer to 5 decimal places. Omit the "$" sign in your response.)

For small investors, a typical transaction cost per share in stocks directly is about 10 cents per share. How many times the transactions costs in futures markets is this? (Round your answer to 2 decimal places.)

Explanation / Answer

a) Current Stock index = 1600 Commission 25 S & P Future contract index Multiplier 250 Value of the Contract = Multiplier x Current stock Index = 250 x 1600 $400,000.00 Transaction cost per Dollar = 25/400000 0.006250% of the value of the stock b) Transaction cost per share = $40 x .006250%/100 0.0025 c) Number of times = 0.10/.0025 40 times

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