Creating Equity Out of Cash

Equitizing cash using stock index futures and risk-free bonds requires using the cash:

Incorrect. The stock index futures aren't "purchased" with cash. They are purchased in position only, and the cash transaction is at expiration, when the underlying is delivered.

Correct! This strategy involves using the available cash for the purchase of a risk-free bond, while simultaneously opening a long position on futures contracts. When the bond matures, that greater cash value will be used with the futures contracts to take delivery of the underlying stock index securities.

Incorrect. There's no short selling in cash equitization. It's a combination of a long bond position and a long futures position.

to purchase the stock futures.

to purchase the risk-free bond.

obtained from selling the bond short.