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Suppose the current value of the S&P 500 index is 1000, the future value of the dividends over the next six months will be $20 and the T-bill rate is 5% (continuously compounded rate). Suppose the Northwestern endowment has $100,000,000 invested in the S&P 500.
a. What will be the futures price for an S&P 500 futures contract which settles in 6 months?
b. Suppose the portfolio manager for the endowment thinks that T-bills will outperform the S&P over the next six months. If the contract size for the S&P 500 contract is 250 times the value of the index, what futures position should she take? What rate of return will the manager earn over this period? Draw the manager's position before and after she puts on the hedge.
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Scott and Alisson are married and file a joint tax return. Scott is a graduate student who works part-time and earned $15,000 in 2012. He is not eligible to participate in his employer's retirement plan because he is a part-time worker.
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A bond is a common investment opportunity. Suppose you have the opportunity to buy a bond with a par value of $1,000 and semi-annual coupon payments of $40.
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