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The multiplier for a futures contract on the stock-market index is $50. The maturity of the contract is one year, the current level of the index is 2,000, and the risk-free interest rate is 0.5% per month. The dividend yield on the index is 0.2% per month. Suppose that after one month, the stock index is at 2,110.
Required:
a. Find the cash flow from the mark-to-market proceeds on the contract. Assume that the parity condition always holds exactly. (Do not round intermediate calculations. Round your answer to 2 decimal places.)
b. Find the one-month holding-period return if the initial margin on the contract is $10,000. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Sagot :

S0 = Index value as of 2000

Multiplier = 352

r = Risk-free interest rate = 0.005 0.5%/month

d = Dividend yield 0.002 0.2%/month

n = 12 [monthly addition, 2 1 years] 4 = 14

Initial Future Price = FO= SO*(1+r-d)^n

Initial Future Price = FO= 2000*(1+0.005-0.002)^12

Initial Future Price = FO = 2073.19

After a month

Futures price = FO = 2073*(1+0.005-0.002)^11

Future price = FO =2142.44

So Cash flow will be = (2142.44 - 2073.19)* 50

A.  So Cash flow will be = 346.5

B. Holding period return = 0.03%[346.5/10000]

Cash flow is a measure of the total cash received or spent by a business over a period of time. Cash flows are usually categorized into cash flows from operating activities investing activities, and financing activities in the cash flow statement of joint financial statements. Cash flows from operating activities include expenses incurred in the ordinary course of business activities.

Learn more about Cash flow here:- https://brainly.com/question/735261

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