Before Mason receives the e-mail, he turns his attention to a memo about a futures contract a subordinate is considering. Unfortunately, the memo arrives without the summary page to the notes. Mason must deduce the nature of the hedge based on its characteristics: The risk-free rate used in calculating the futures price, and that price adjusted to account for individual future dividends. Based on the two characteristics of the futures contract in Mason’s memo, which of the following does the contract refer to? Treasury bond futures? — Stock index futures? A) Yes — No B) No — Yes C) Yes — Yes D) No — No
This is kind of a messed up question. D? Reasoning: Individual future dividends wouldn’t be used for a treasuries future…the present value (or future value) of the coupon payments would be used. The risk-free rate is used in valuing the future for a stock index, but it is using the continuously compounded rate, not the discrete (which I am assume is what is given above). Also usually you are using the dividend yield on the stock index, not the individual dividends of each underlying stock (althought that should be possible). Happy Friday night slouiscar…man we are lame.
^^I couldn’t agree more. (w/ your explanation I mean, not the lame part. I am way cooler than you.) Your answer: D was incorrect. The correct answer was A) Yes No Both Treasury bond futures and stock index futures require the use of the risk-free rate to determine price. But while the pricing of bond futures requires the discounting of individual dividends, the pricing of stock-index futures does not, instead using a continuously compounded dividend yield. bonds pay dividends now? happy fri nite.
slouiscar Wrote: ------------------------------------------------------- First I have to ask why you posted this stupid question on AF? Was it to take the little confidence I have slouis…you are kind of sinister like that… ^^I couldn’t agree more. (w/ your explanation I > mean, not the lame part. I am way cooler than > you.) This is a relative measure. You could be way cooler than me and still be lame. This is most likely the case. > > Your answer: D was incorrect. The correct answer > was A) Yes No Bull. > > Both Treasury bond futures and stock index futures > require the use of the risk-free rate to determine > price. But while the pricing of bond futures > requires the discounting of individual dividends, > the pricing of stock-index futures does not, > instead using a continuously compounded dividend > yield. > > bonds pay dividends now? If bonds pay divideds than I have more to study than I thought. > > happy fri nite. Have some beers.
beer mmmm beer.
Are you sure this is correct? If it is i must be on the wrong track for this exam…