Exhibit 20.1 Use the Information Below for the Following Problem(S)

question 98

Multiple Choice

Exhibit 20.1
Use the Information Below for the Following Problem(S)
December futures on the S&P 500 stock index trade at 250 times the index value of 1187.70. Your broker requires an initial margin of 10% percent on futures contracts. The current value of the S&P 500 stock index is 1178.
-Refer to Exhibit 20.1.Suppose at expiration the futures contract price is 250 times the index value of 1170.Disregarding transaction costs,what is your percentage return?

• A) 1.87%
• B) -0.68%
• C) -14.90%
• D) 10.36%
• E) None of the above

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Definitions:

Shareholders' Equity

The residual interest in the assets of a corporation after deducting liabilities, representing the net worth attributable to shareholders.

Inventory

The goods and materials that a business holds for the ultimate goal of resale or processing.

Liquidity

Refers to the ease with which an asset can be converted into cash without affecting its market price.

Capital Structure

The specific mixture of debt and equity used by a firm to finance its overall operations and growth.