1. Suppose that a Canadian Company, Maple Leaf Inc., is exporting its products to Australia in...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
1. Suppose that a Canadian Company, Maple Leaf Inc., is exporting its products to Australia in Nov. Upon this transaction, Maple Leaf will receive $60M AUD 6 months later. If Maple Leaf Inc. wants to lock in their exchange rate, what could they do? What type of Trader is Maple Leaf Inc.? What are the main differences between a Forward and a Future's contract? 2. A trader is looking at purchasing one 3-month futures contracts on frozen orange juice concentrate. Each contract is for delivery of 15,000 pounds. The current spot price is $1.60 per pound, and the risk-free rate is 6%. Ignore transaction and storage costs. What is the Futures price according to the no-arbitrage principle? If the futures price is trading at $1.50, what would be your arbitrage profit (show your steps)? 3. On December 1, an investor holds 50,000 shares of a certain stock. The market price is $30 per share. The investor is interested in hedging against movements in the market over the next month an decides to use an index futures contract. The index futures price is currently 1,500 and one contract is for delivery of $50 times the index. The beta of the stock is 1.3. What strategy should the investor follow? Under what circumstances will it be profitable? 4. The 6-month and 1-year zero rates are both 5% per annum. For a bond that has a life of 18 months and pays coupon of 4% per annum (with semi-annual payments and one having just been made), the yield is 5.2% per annum. What is the bond's price?? What is the 18-month zero rate? All rates are quoted with semi-annual compounding. 5. A 5-year bond with a yield of 7% (continuously compounded) pays an 8% coupon at the end of each year. What is the bond's price? What is the bond's duration? Use the duration to calculate the effect on the bond's price of a 0.2% decrease in its yield. 1. Suppose that a Canadian Company, Maple Leaf Inc., is exporting its products to Australia in Nov. Upon this transaction, Maple Leaf will receive $60M AUD 6 months later. If Maple Leaf Inc. wants to lock in their exchange rate, what could they do? What type of Trader is Maple Leaf Inc.? What are the main differences between a Forward and a Future's contract? 2. A trader is looking at purchasing one 3-month futures contracts on frozen orange juice concentrate. Each contract is for delivery of 15,000 pounds. The current spot price is $1.60 per pound, and the risk-free rate is 6%. Ignore transaction and storage costs. What is the Futures price according to the no-arbitrage principle? If the futures price is trading at $1.50, what would be your arbitrage profit (show your steps)? 3. On December 1, an investor holds 50,000 shares of a certain stock. The market price is $30 per share. The investor is interested in hedging against movements in the market over the next month an decides to use an index futures contract. The index futures price is currently 1,500 and one contract is for delivery of $50 times the index. The beta of the stock is 1.3. What strategy should the investor follow? Under what circumstances will it be profitable? 4. The 6-month and 1-year zero rates are both 5% per annum. For a bond that has a life of 18 months and pays coupon of 4% per annum (with semi-annual payments and one having just been made), the yield is 5.2% per annum. What is the bond's price?? What is the 18-month zero rate? All rates are quoted with semi-annual compounding. 5. A 5-year bond with a yield of 7% (continuously compounded) pays an 8% coupon at the end of each year. What is the bond's price? What is the bond's duration? Use the duration to calculate the effect on the bond's price of a 0.2% decrease in its yield.
Expert Answer:
Related Book For
Understanding Financial Accounting
ISBN: 978-1118849385
1st Canadian Edition
Authors: Christopher Burnley, Robert Hoskin, Maureen Fizzell, Donald
Posted Date:
Students also viewed these finance questions
-
In December, 1993, Metallgescellschaft AG revealed publicly that its "Energy Group" was responsible for losses of approximately $1.5 billion, due mainly to cash-flow problems resulting from large oil...
-
QUIZ... Let D be a poset and let f : D D be a monotone function. (i) Give the definition of the least pre-fixed point, fix (f), of f. Show that fix (f) is a fixed point of f. [5 marks] (ii) Show that...
-
Solve the equation symbolically. Then solve the related inequality. |2.1x0.7| = 2.4, 2.1x -0.7 2.4
-
Let G = (V, E) be a connected undirected graph. (a) What is the largest possible value for |V| if |E| = 19 and deg(v) > 4 for all v V? (b) Draw a graph to demonstrate each possible case in part (a).
-
Condensed profit and cash flow information (in USD millions) follow for three fast food companies: McDonald's Corporation, Burger King Holdings, Inc., and Wendy's/Arby's Group, Inc.: Instructions (a)...
-
Which cost is not recorded as part of the cost of a building? a. Construction materials, labor, and overhead b. Annual building maintenance C. Real estate commission paid to buy the building d....
-
Service World maintains a petty cash fund. The fund custodian encountered the following events. a. The fund was established when a check for $ 300 was cashed and deposited into a locked cash box. b....
-
The table below shows the probabilities of the four pairs (a, c), (a, d), (b, c) and (b, d). The random variable x can take either of the values a or b. The random variable y can take either of the...
-
A professor gives a statistics exam. The exam has 25 possible points. The scores for the students in the first classroom are as follows: 24 25 19 15 20 19 17 25 17 Calculate the sample size, n, and...
-
Bryant Smith needs to triple his savings in 5 years. What interest rate per year (compounded annually) would he need to earn?
-
Barbara Sanderson, your first client since establishing the investment firm Wealth Builders Incorporated, has asked you to tell her the amount she needs to save at the end of each month for her to...
-
Calculate the implied current interest rates in Togo given that: the 180-day forward rate of the Togo currency is $0.85/T, the current exchange rate is one US dollar equals 1.3456 of the Togo...
-
A company issues 3 6 , 4 0 0 shares of $ 1 par common stock with a fair value of $ 6 per share ( based upon a recent sale of 2 6 shares ) for land. The land is recently appraised at $ 2 0 8 , 0 0 0...
-
TABLE OF CONTENTS 1. Introduction 2. Download Code and Setup 3. Problem 1: Battery Meter Simulation o 3.1. Overview o 3.2. batt update.c: Updating the Display with User Code o 3.3. Battery Meter...
-
Homeware Ltd is a Hong Kong based company which produces a variety of kitchen appliances for multiple markets. The company is well known for its product design and quality. Yummy Pot, an electric...
-
A fuel pump sends gasoline from a car's fuel tank to the engine at a rate of 5.88 10-2 kg/s. The density of the gasoline is 735 kg/m3, and the radius of the fuel line is 3.18 10-3 m. What is the...
-
You are a consultant who helps new entrepreneurs set up their accounting systems. You are frequently asked the following questions about inventory: What are internal controls? Why do I need to...
-
During a discussion regarding the recent sale of a piece of equipment, your company president, Nanda Saloojee, stated: I dont understand what it means to have a gain from the sale of equipment. Why...
-
Southern Exposure Ltd. begins operations on January 2, 2016. During the year, the following transactions affect shareholders equity: 1. Southern Exposures articles of incorporation authorize the...
-
What are the major files and printed outputs of computerised processing for sales transactions?
-
State the main audit objectives for (1) sales transactions and (2) debtors balances.
-
What is the sequence of steps normally associated with processing of credit sales? For each step, identify one control.
Study smarter with the SolutionInn App