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NEW QUESTION: 1
Which of the following statements are true:
I. Forward prices for a stock will fall if dividend expectations increase for the period the contract is alive II. Three month forward prices will decline if the 10 year rate goes up, and short term rates stay unchanged III. Futures exchanges require buyers but not sellers to deposit initial margins IV. Variation margin is to be deposited when a futures contract is entered into
V. Futures exchanges requires hedgers and speculators to deposit identical margins VI. Interest rate futures contracts carry duration but no convexity due to the daily cash settlements
A. I and IV
B. I, II, V and VI
C. II and III
D. I
Answer: D
Explanation:
Explanation
Statement I is correct - since forward prices are determined as (Spot - PV of dividends)*e