Synthetic Cash, Future Dividend? index, contract, convert, manager

RoastBeef

A manager wants to synthetically convert to cash $45 million of a diversified stock portfolio for three months. The manager will use the CME E-mini S&P stock index futures contract, which has a multiplier equal to $50, and the price of the three month contract is 1610.50. The dividend yield on the portfolio is 2.4%. The risk-free rate is 4.04%. The number of contracts the fund needs to use is closest to:

A) 564.
B) 588.
C) 532.

PalacioHill

564 contracts short.

He will hold 564(50)/1.024^(.25) = 28,033.29 shares against it that will grow to 28200 at expiration in 3 months.

Deliver 28,200 shares at expiration, receive RFR during the time.



Edited 1 time(s). Last edit at Thursday, June 2, 2011 at 03:04PM by Paraguay.

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