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Lecture+20+Nov+23+2011

Lecture+20+Nov+23+2011 - FINA3104 Lecture20...

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FINA 3104: Investment Analysis and Portfolio Management Lecture 20 – Futures Markets (continued) Darwin Choi November 23, 2011 Recap from Last Lecture Motivating Futures Contracts Hedging and speculating Forward & Futures Contracts Types of Assets Traded Payoffs on Futures Contracts Mechanics of Futures Trading Margin and mark to market 2
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Outline of Today’s Lecture Determinants of Futures Prices Spot Futures Parity Theorem 3 Hedge Pricing Example Suppose that today: You own an S&P 500 index fund worth $900. The fund pays $20 in dividends per year. You sell a one year futures contract for $925. Suppose that in one year: The fund could be worth $885, $925, or $965. What is the ROI on this riskless hedge? 4
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