Which of the following statements concerning futures are correct?
I. Investors in financial futures can earn both dividend income from the underlying security as well as the potential capital gain from the futures contract.
II. The return on a futures contract is computed by dividing the net difference between the sale and the purchase price of the contract by the amount of the margin deposit.
III. It is very easy to lose your entire investment in a futures contract in a very short period of time due to the volatility of the futures market and also the use of leverage.
IV. Conservative investors tend to purchase one futures contract as a means of increasing the return on their portfolio while maintaining minimal risk.
A) I and II only
B) II and III only
C) I, II and IV only
D) I, II and III only

Question

Quizplus · Accepted Answer

II and III are correct. The return on a futures contract is indeed calculated by the net difference between the sale and purchase price divided by the margin deposit, and the nature of futures contracts' leverage and volatility means investors can quickly lose their entire investment. Investors in financial futures do not receive dividend income from the underlying security, and purchasing futures contracts is generally not considered a minimal risk strategy for conservative investors.

Which of the Following Statements Concerning Futures Are Correct