Questions from General Investment

Q: At Litchfield Chemical Corp. (LCC), a director of the

At Litchfield Chemical Corp. (LCC), a director of the company said that the use of dividend discount models by investors is “proof ” that the higher the dividend, the higher the stock price. a. Using...

Q: a. A single stock futures contract on a nondividend-paying

a. A single stock futures contract on a nondividend-paying stock with current price $150 has a maturity of one year. If the T-bill rate is 3%, what should the futures price be? b. What should the fut...

Q: The Excel Applications box in the chapter (available in Connect;

The Excel Applications box in the chapter (available in Connect; link to Chapter 17 material) shows how to use the spot-futures parity relationship to find a “term structure of futures prices,” that i...

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

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 1,000 shares of stock in on...

Q: The multiplier for a futures contract on the stock-market index

The multiplier for a futures contract on the stock-market index is $50. The maturity of the contract is one year, the current level of the index is 3,000, and the risk-free interest rate is 0.5% per m...

Q: Suppose the S&P 500 Index portfolio pays a dividend yield

Suppose the S&P 500 Index portfolio pays a dividend yield of 2% annually. The index currently is 3,000. The T-bill rate is 3%, and the S&P futures price for delivery in one year is $3,045. Construct a...

Q: a. How should the parity condition (Equation 17.2

a. How should the parity condition (Equation 17.2) for stocks be modified for futures contracts on Treasury bonds? What should play the role of the dividend yield in that equation? b. In an environme...

Q: Desert Trading Company has issued $100 million worth of longterm bonds

Desert Trading Company has issued $100 million worth of longterm bonds at par at a fixed rate of 7%. The firm then enters into an interest rate swap where it pays LIBOR and receives a fixed 6% on noti...

Q: What type of interest rate swap would be appropriate for a speculator

What type of interest rate swap would be appropriate for a speculator who believes interest rates soon will fall?

Q: The margin requirement on the S&P 500 futures contract is

The margin requirement on the S&P 500 futures contract is 10%, and the stock index is currently 3,000. Each contract has a multiplier of $50. a. How much margin must be put up for each contract sold?...