Question 1

On January 1, the listed spot and futures prices of a Treasury bond were 95.4 and 95.6.You sold $100,000 par value Treasury bonds and purchased one Treasury bond futures contract.One month later, the listed spot price and futures prices were 95 and 94.4, respectively.If you were to liquidate your position, your profits would be a

Accepted Answer

The profit or loss from the spot market transaction and the futures market transaction must be calculated separately and then combined to determine the overall profit or loss. The spot market transaction involves selling the Treasury bonds at the initial spot price and buying them back at the later spot price. The futures market transaction involves buying a futures contract at the initial futures price and selling it at the later futures price. The calculations for each market must consider the price changes in terms of 32nds of a dollar, as Treasury bond prices are quoted in this manner. The overall profit or loss is the sum of the profit or loss from each transaction. The provided choices do not accurately reflect the correct calculation based on the given price changes in the spot and futures markets.

Question 2

You purchased one oil future contract at $70 per barrel.What would be your profit (loss) at maturity if the oil spot price at that time is $73.12 per barrel? Assume the contract size is 1,000 barrels and there are no transactions costs.

Accepted Answer

The profit would be ($73.12 - $70) * 1,000 = $3,120, which is not an option listed.

Question 3

If you determine that the DAX-30 Index futures is underpriced relative to the spot DAX-30 Index, you could make an arbitrage profit by

Accepted Answer

By buying DAX-30 Index futures and selling all the stocks in the DAX-30, an investor can profit from the underpriced futures market relative to the spot market. This is because the investor will be able to profit from the price difference between the futures price and the spot price without having to take on the risk of the underlying stocks. The other options involve buying or selling stocks and options, which may not result in the same level of arbitrage profit as buying futures and selling stocks, and may also involve additional risks.

Question 4

You sold one oil future contract at $70 per barrel.What would be your profit (loss) at maturity if the oil spot price at that time is $73.12 per barrel? Assume the contract size is 1,000 barrels and there are no transactions costs.

Accepted Answer

The answer of You sold one oil future contract at...

Question 5

If you determine that the DAX-30 Index futures is overpriced relative to the spot DAX-30 Index, you could make an arbitrage profit by

Accepted Answer

If the DAX-30 Index futures are overpriced relative to the spot DAX-30 Index, an arbitrage profit can be made by selling the overpriced futures and buying the undervalued stocks in the DAX-30. This strategy involves simultaneously selling futures and buying the underlying stocks to exploit the price difference for a risk-free profit.

Quiz 22: Futures Markets

You purchased one oil future contract at $70 per barrel.What would be your profit (loss) at maturity if the oil spot price at that time is $73.12 per barrel? Assume the contract size is 1,000 barrels and there are no transactions costs.

If you determine that the DAX-30 Index futures is underpriced relative to the spot DAX-30 Index, you could make an arbitrage profit by

You sold one oil future contract at $70 per barrel.What would be your profit (loss) at maturity if the oil spot price at that time is $73.12 per barrel? Assume the contract size is 1,000 barrels and there are no transactions costs.

If you determine that the DAX-30 Index futures is overpriced relative to the spot DAX-30 Index, you could make an arbitrage profit by