True about profits from futures contracts

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Reference no: EM131844117

1. A stock is expected to pay a dividend of $1.50 per share in one months and in 4 months. The stock price is $50, and the risk-free rate of interest is 7% per annum with continuous compounding for all maturities. An investor has just taken a long position in a six-month forward contract on the stock. What is contractually arrived at forward price?

A) 48.72

B) 48.99

C) 48.84

D) 49.75

2. Which of the following is true about profits from futures contracts?

The person with the long position gets to decide whether to exercise the futures contract and will only do so if there is a profit to be made.

It is possible for both the holder of the long position and the holder of the short position to earn a profit.

The clearinghouse makes most of the profit.

The amount that the holder of the long position gains must equal the amount that the holder of the short position loses.

Holders of short positions can recognize profits by making delivery early.

Reference no: EM131844117

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