Ask Question
18 November, 20:22

One Chicago has just introduced a new single stock futures contract on the stock of Brandex, a company that currently pays no dividends. Each contract calls for delivery of 1,000 shares of stock in one 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?

b. If the Brandex stock price drops by 3%, what will be the change in the futures price and the change in the investor's margin account?

c. If the margin on the contract is $12,000, what is the percentage return on the investor's position?

+5
Answers (1)
  1. 18 November, 23:58
    0
    A: $127.2

    B: $123.384, $3.816 per share and $3,816 per contract

    C: 9.43%

    Explanation:

    A: Futures price

    F° = S° (1 + rₙ) = $120 x 1.06

    = $127.20

    B: Change in Future Price and Investor Margin account:

    New Spot = $120 (1 - 0.03)

    = $120 x 0.97

    = $116.40

    New Futures = $116.40 (1.06)

    = $123.384

    The long investor loses = $127.20 - $123.384

    = $3.816 per share

    or $3.816 (1,000) = $3,816 per contract

    C: Percentage return on the investor's position:

    Percentage return = $12,000 / $127,200

    = 9.43%
Know the Answer?
Not Sure About the Answer?
Find an answer to your question ✅ “One Chicago has just introduced a new single stock futures contract on the stock of Brandex, a company that currently pays no dividends. ...” in 📘 Business if you're in doubt about the correctness of the answers or there's no answer, then try to use the smart search and find answers to the similar questions.
Search for Other Answers