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. Calculate the return on a cash investment in the S&P 500 stock index if the ending index value is 1170 over the same time period.
A) 1.87%
B) -0.68%
C) -14.90%
D) 10.36%
E) 13.58%

Question

Quizplus · Accepted Answer

The return on a cash investment in the S&P 500 stock index is calculated by the change in the index value divided by the initial index value. The initial index value is 1178 and the ending index value is 1170, so the return is $\frac{1170 - 1178}{1178} = -\frac{8}{1178} \approx -0.68\%$.