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PRMIA Exam 8006 Topic 1 Question 10 Discussion

Actual exam question for PRMIA's Exam I: Finance Theory, Financial Instruments, Financial Markets ? 2015 Edition exam
Question #: 10
Topic #: 1
[All Exam I: Finance Theory, Financial Instruments, Financial Markets ? 2015 Edition Questions]

What is the notional value of one equity index futures contract where the value of the index is 1500 and the contract multiplier is $50:

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Suggested Answer: A

The correct answer is the index value times the contract size, in this case 1500 x 50.

One way to think about index futures is this: Consider equity index trading as trading in the shares of a company whose share price is equal to a number of dollars which is the same as the index. If the 'contract multiplier' for a index futures contract is 50, that means the futures contract is for 50 shares of such a fictitious company. Therefore the notional value of the contract will be 15000 x 50, and Choice 'a' is the correct answer.


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