If you buy in April a stock index future contract on the S&P 500 index at the price of 1200 points that matures on June 30 of the same year and on the maturity date the S&P 500 Index is at 1000, you have a ________ of $________.
A)loss; 50000
B)loss; 200
C)profit; 50000
D)profit; 200

Question

Quizplus · Accepted Answer

Since the contract was bought at 1200 points and the index decreased to 1000 points, there is a loss since the buyer agreed to buy at a higher price than the current market price. To calculate the loss, we use the formula:
Loss = (Contract price - Market price) x Contract size
= (1200 - 1000) x $50
= 200 x $50
= $10,000
Therefore, the answer is A) loss; $10,000 or $50000 (depending on the contract size).

If You Buy in April a Stock Index Future Contract