《《Essentials of Investment 9ed Chap 17》.pdfVIP

CHAPTER 17 FUTURES MARKETS AND RISK MANAGEMENT 1. Selling a contract is a short position. If the price rises, you lose money. Loss = (1,250 – 1,200) $250 = $12,500 2. Futures price = S (1+ r − d)T = $ 1,200 (1 + .01 – .02) = $1,188 0 f 3. The theoretical futures price = S (1+ r )T = $1,700 (1 + .02) = $1,734. At $1,641, the 0 f gold futures contract is underpriced. To benefit from the mispricing, we sell gold short $1,700 today, lend the money at risk- free rate, and long gold future of $1,641. One year from today we ’ll have cash inflows from the loan of $1,734 and the proceeds from future position of (ST – $1,641), and outflow to close the short position of gold at spot price (–S ). The arbitrage profit is thus $ 1,734 + (S – $1,641) + (–S ) = $93. T T T This answer presumes that that the commodity is available for short sale without fees and with full access to the proceeds of the short sale. In real-world practice, failure to satisfy these conditions may limit the apparent arbitrage opportunity. 4. Margin = $115,098 .15 = $17,264.70 Total $ Loss = $115,098 – $108,000 = $7,098 Total % Loss = $7,098/$17,264.70 = 41.11 % loss 5. a. The required margin is 1,164.50 $250 .10 = $29,112.50 b. Total Return = (1,200 – 1,164.50) $250 = $8,875 Percentage Return = $8,875/$29,112.5 = .3049 = 30.49% c. Total Loss = [1,164.5 (1 – .01)] – 1,164.5) $250 = –$2,911.25 Percentage Loss = –$2,911.25/$29,112.5 = – .10 or 10% loss 6. The ability to buy on margin is one advantage of futures. An