Home Work 4 Answers. today © the price at a o) Se iedrd peice of O° assed to buy oF sel the asset ot which You would agree future toe The value of oO eoter te into ut AS and the value of the _ fuest foward contract Abe und lying dime passes asset price changes qniract Beare postwe or negarwe 02) F- 9 et oe *& = 302 - = $91 -86 03) £ = So erat Co 98-004) * 4 2 850 e 2 $3947 price of a stocks index is always less 4) Fe futures dhan dhe expected future value of ahe tode x Te positve systematic risk. Follow From Ane fact that dhe tnd : ex asef be dhe expected return required by uestors on dhe index So that ch-qyt E(S7) -S@ aa are Because ?r and fo = Se & ‘ or it Follows that e (Sr)7 Fe 6) The Abeorheal future Price Is, 400 acer ogy a = 408-08 The actual futures Price vs only 405. This shous that index futures price ts tee low relative do the index. The correct arbitrage tsdradegy iS. 2) Bay Futures comtracds L) short the shares undelyrng. dhe index. ag) present value of £ (tn come © fom the secant) mes ' -0'08 x2 e fa =x ook ata = W964). at iliac ni siiai olehe intial value of the foward contract is b) To three reonths, =008x Ze te. e 12 20:9 8bS The delwery price .K iS SOON: _ (s- a) —(4e- 098b8 - 50-01 6° °° “h) = 2.0) Cvalue of the Short foward centract) nm ” (se-4) eo (4e- o-gacs\e”