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Assume that an investor buys a stock index futures contract on March 1 at 1125 which was that day's closing price. The position is closed out on March 5 at that day's settlement price. The stock index prices at the closing of trade on March 2 to March 5 are 1128, 1127, 1126, 1128. Calculate the cash flow to the investor on a daily basis. Ignore the margin requirements.
A nondividend-paying stock has a current price of Rs 40. What will be the futures price if the risk-free rate is 8 percent and the maturity of the futures contract is 3 months?
Suppose a stock index has a current value of 1200. If the risk-free rate is 10 percent and the expected dividend yield on the index is 3 percent, what should be the price of the one year maturity futures contract?
The six-months futures contract for gold is $432.8 while the one year futures contract for gold is $453. The risk-free interest rate is 8%. Do you see an arbitrage opportunity? If so, what will you do to exploit it? Ignore storage cost and convenience benefit.
The share of Ram Limited is currently selling for Rs 1,000. The risk-free interest is 1 percent per month. Suppose the 3-months futures price is Rs 1035. What will you do? Assume that Ram Limited will not pay any dividend in the next six months.