USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
December futures on the S&P 500 stock index trade at 250 times the index value of 1187.70. Your broker requires an initial margin of 10 percent on futures contracts. The current value of the S&P 500 stock index is 1178.
-Refer to Exhibit 15.14. Suppose at expiration the futures contract price is 250 times the index value of 1170. Disregarding transaction costs, what is your percentage return?
A) 1.87%
B) -0.68%
C) -14.90%
D) 10.36%
E) 13.58%

Question

Quizplus · Accepted Answer

The initial futures contract price is 250 times the index value of 1187.70, which equals $296,925. The expiration futures contract price is 250 times the index value of 1170, which equals $292,500. The initial margin required is 10% of the initial futures contract price, which is $29,692.50. The profit is the difference between the initial and expiration futures contract prices, which is $296,925 - $292,500 = $4,425. The percentage return is the profit divided by the initial margin required, which is ($4,425 / $29,692.50) * 100 = 14.90%.