One Chicago has just introduced a new single stock futures contract on the stock

Question

One Chicago has just introduced a new single stock futures contract on the stock of Brandex, a company that currently pays no dividends. Each contract calls for delivery of 1,500 shares of stock in one year. The T-bill rate is 4% per year.

If Brandex stock now sells at $210 per share, what should the futures price be? (Round your answer to 2 decimal places.)

218.4 (Figured out A, Just need part B)

If the Brandex stock price drops by 1.0%, what will be the change in the futures price and the change in the investor's margin account? (Input all amounts as positive values. Do not round intermediate calculations. Round your answers to 2 decimal places.)

One Chicago has just introduced a new single stock futures contract on the stock of Brandex, a company that currently pays no dividends. Each contract calls for delivery of 1,500 shares of stock in one year. The T-bill rate is 4% per year.

Explanation / Answer

a.

Futures price = Spot price × (1 + Risk Free rate)

= $210 × (1 + 4%)

= $218.40.

Futures price is $218.40.

b.

If the Brandex stock price drops by 1.0%, then futures price is calculated below:

Futures price = $210 × (1 - 1%) × (1 + 4%)

= $207.90 × 1.04

= $216.22.

Futures price would be $216.22.

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