Calculate number of futures contracts required to synthesize

Assignment Help Financial Management

Reference no: EM132057267

An investment manager has a client who would like to temporarily reduce exposure to equities by converting a $25 million equity position to cash for a period of four months. The client would like to do this without liquidating the equity position, so equity futures are one appropriate tool. The futures contract is priced at 1170.1 with a multiplier of $250 and expires in four months. The dividend yield on the underlying index is 1.25%, and the risk-free rate is 2.75%.

A. Calculate the number of futures contracts required to synthesize the cash, and state whether it will be a long or short position.

B. Determine the effective amount of money committed to the transaction.

C. Assume that the stock index is at 1031 when the futures contract expires. At expiration, what is the total value of the futures and stock position?

NO EXCEL. PLEASE SHOW EVERY STEP IN DETAIL

Reference no: EM132057267

Questions Cloud

What is the percent market value of equity for this firm : what is the percent market value of equity for this firm? what is the total market value of this firm?

What is the after tax cost of debt for this firm : If the annual yield to maturity of the bonds is 6.14%, what is the after tax cost of debt for this firm?

What is the discounted payback for project : The required rate of return is 14% for projects at this company. What is the discounted payback for this project?

After tax salvage cash flow for this new machine : If the corporate tax rate is 29%, what is the after tax salvage cash flow for this new machine at the end of the project?

Calculate number of futures contracts required to synthesize : Calculate the number of futures contracts required to synthesize the cash, and state whether it will be a long or short position.

What is the financial and accounting break-even point : If the required rate of return is 11% per year, what is the accounting break-even point? what is the financial break-even point?

Exchange rates-interest rates and inflation rates : Below shows the information for exchange rates, interest rates and inflation rates in the US and Germany.

What is the after tax salvage cash flow : If the corporate tax rate is 29%, what is the after tax salvage cash flow for this new machine at the end of the project?

What is the net present value for best project : The required rate of return is 10% for projects at this company. What is the net present value for the best project?

User Account

All Pages