Questions and Answers of Derivatives Principles And Practice

The table shows the annual loan rates that American and British multinational companies can each obtain on a five-year, $\$ 150$ million loan in dollars and an equivalent five-year, $£ 100$
Currency swap valuation questions:a. What is the bond equivalent of a currency swap position in which the counterparty agrees to swap a three-year, $10 \%$ loan of $\$ 15$ million for a
Explain with an example an operational exchange rate hedge or natural hedge. In your example, assume a US-owned company with its operation and sales in the United Kingdom, material expenditures in US
Select a CDS on a company of interest with investment-grade bonds (Ticker CDS ), CDS Ticker ) and analyze it using the following screens: DES, AllQ (Composite Quotes), GP, and CDSW (Valuation).
Select a CDS on a company of interest with non-investment-grade bonds (Ticker CDS , CDS Ticker ) and analyze it using the following screens: DES, AllQ (Composite Quotes), GP, and CDSW (Valuation).
Select a CDS from the WCDS screen (Ticker CDS , CDS Ticker ) and analyze it using the following screens: DES, AllQ (Composite Quotes), GP, and CDSW (Valuation).
Select a CDS on a sovereign country's CDS. From the SECF screen (SECF ), click "Fixed Income" in the "Category" dropdown, click the "CDS" tab, and type in the name of the country (e.g., Greece) in
On the SWPM screen, create and then evaluate a currency swap. On SWPM screen, click "Cross Currency Swap (Fixed-Fixed)" from the "Products" tab. On the "Main" screen, select currency and interest
Suppose you took a short position in a June Eurodollar futures at $R_{D}=2.50 \%$.Determine the futures settlement prices and your position's profits and losses given the following LIBOR at the
Explain how the clearinghouse would record the futures trades in a-d. Include the clearinghouse's payments and receipts needed to close each position.a. Mr. A buys a September T-bond futures contract
Define a forward rate agreement (FRA). Provide your own example of a FRA.
Given a FRA with the following terms:- Notional principal $=\$ 20$ million- Reference rate $=$ LIBOR- Contract rate $=R_{k}=2.00 \%$ (annual)- Time period $=90$ days- Day-count convention
Kendall National Bank is planning to make a $\$ 10$ million short-term loan to Two-Dollar General. In the loan contract, Two-Dollar agrees to pay the principal and an interest of $2.50 \%$
As an alternative to a nine-month, $4 \%$ fixed-rate loan for $\$ 10$ million, the O'Brien Beverage Company is considering a synthetic fixed rate loan formed with a $\$ 10$ million
Xavier Trust is planning to invest $\$ 10$ million for one year. As an alternative to a oneyear fixed-rate note paying $2.5 \%$, XSIF is considering a synthetic investment formed by investing in
Using the carrying-cost model, determine the equilibrium price of a forward contract on a 90-day zero coupon bond ( $\mathrm{ZCB}$ ) with a face value of $\$ 1$ million and expiring in 180 days.
Given: (1) 121-day spot T-bill trading 98.318 to yield $5.25 \%$; (2) 30-day risk-free rate of $5.15 \%$; (3) a T-bill futures contract with an expiration of $T=30$ days.a. What is the
Given the following information related to a T-bond futures contract expiring in six months:- The best estimate of the cheapest-to-deliver bond on the T-bond futures contract pays an $8 \%$ coupon,
Select a US Treasury bond or note with an intermediate-term or long-term maturity (5 to 20 years). To find your bond, use the FIT screen or SECF (SECF < Enter>; Category: Fixed-Income; Govt Tab;
Evaluate the current yield curve level and structure using the following screens:a. YCRV or GC to access yield curves.b. FWCV to determine implied forward rates.c. USoo03M, USoo06M, USoo09M, and
Access Bloomberg information on a CME Eurodollar futures contract: Type CTM to bring up the "Contract Table Menu," click "Categories" and "Interest Rates," search for CME on the Menu (type CME in the
Examine the historical prices of the Eurodollar futures contract you selected in Exercise 3 (select a time period that the contract was active).a. Select a period in which you would have taken a long
Access Bloomberg information on a T-bond futures contract: type CTM to bring up the "Contract Table Menu," click "Categories" and "Bonds," search for the CBT on the Menu (type CBT in the amber
Using the GP screen, examine the historical prices of the T-bond futures contract you selected in Exercise 5 (select a time period that the contract was active).a. Select a period in which you would
Access Bloomberg information on a T-note futures contract: type CTM to bring up the "Contract Table Menu," click "Categories" and "Bonds," search for CBT on the Menu (type CBT in the amber Exchange
Using the Chart screen (Chart ), examine an intercommodity Notes-over-Bonds (NOB) spread formed with a T-bond futures and T-note futures contracts similar to the ones you analyzed.Note that the
Examine an ex-post long hedging position for a future T-bond or T-note purchase.a. Select a futures contract and use one of the cheapest-to-deliver bonds or notes on the contract as the bond or note
Examine an ex-post short hedging position for a future T-bond or T-note sale.a. Select a futures contract and use one of the cheapest-to-deliver bonds or notes on the contract as the bond or note you
Examine an ex-post short hedging position in which you hedge the value of a holding of 1,000 issues of a selected option-free (bullet), investment-grade corporate bond of interest with a futures
Examine an ex-post short hedging position for the portfolio you created.a. Select a futures contract on a CBT T-bond or T-note contract to hedge your portfolio. Use the expiration date on the futures
Examine a duration enhancement or reduction strategy for the portfolio you created.a. Select one futures contract on a T-bond or T-note (e.g., TYA) to go long or short. Use the expiration date on the
Show graphically the profit and stock price relationships at expiration or if the option is exercised for the following fundamental option positions:a. Call Purchaseb. Naked Call Writec. Covered Call
Show graphically the profit and stock price relationships at expiration for the following option positions. In each case, show the profit graph for each position at various stock prices and then
Determine the break-even prices at expiration for the following:a. A straddle purchase formed with ABC call and put options, each with exercise prices of $\$ 60$ and premiums of $\$ 5$.b. A
Compare and contrast buying stock with a call purchase strategy.
Compare and contrast selling stock short with a put purchase strategy.
Explain what arbitrageurs would do if the price of an American call on $\mathrm{ABC}$ stock with an exercise price of $\$ 50$ were priced at $\$ 9$ when the underlying price on $\mathrm{ABC}$
Explain what arbitrageurs would do if the price of an American put on $A B C$ stock with an exercise price of $\$ 50$ were priced at $\$ 9$ when the underlying futures price on $\mathrm{ABC}$
Explain intuitively why call and put options are more valuable the greater their underlying security's variability.
Given a call and put with an exercise price of $\$ 60$, a risk-free discount bond with face value of $\$ 60$ and the same maturity as the options' expiration:a. Construct a table of expiration
Explain the role and functions of the Option Clearing Corporation.
Suppose in February Ms. X sold a June ABC 100 call contract to Mr. Z for \$5, then later closed her position by buying a June ABC 100 for $\$ 7$ from Mr. Y. Explain how the OCC would handle these
Explain the various types of option transactions.
Explain why option holders should, in most cases, close their options instead of exercising. Under what condition, would it be beneficial to exercise a call option early?
Find descriptions, recent prices, and other information on the call and put options of a selected stock. From the loaded stock's menu screen, bring up:a. OMONb. CALLc. PUTd. GV, Volatility Graphe.
Examine several of the call and put options you selected in Exercise 1 from screens shown on the option's menu screen: Option Ticker . View screens on the option's menu: DES and GP.Exercise 1.Find
Select a stock and bring up its equity screen: Stock Ticker . Using the Bloomberg OSA screen, select a call and put option on the stock and evaluate the following option strategies on the stock with
Evaluate a covered write position for a selected stock using Bloomberg's Covered Option Write screen (CWS) for a loaded stock.
Use the Chart screen (Chart \) ) to create multigraphs for the historical prices of the stock, call, and put options you analyzed.Select a time period that the contract was active. On the Chart Menu
Use the GV screen for a loaded stock to evaluate its historical volatility, the stock price, and the price of an option on the stock (you can load your option on the screen). Examine the relations
Answer the following:a. What right does a September $\$5.00$ wheat futures call option contract give the holder?b. What right does a September $\$5.00$ wheat futures put option contract give the
Explain the mechanics of exercising and closing an $\mathrm{S \& P} 500$ futures call options contract with an exercise price of 2,250 and multiplier of $\$ 250$ when the underlying futures
Explain the mechanics of exercising and closing an $\mathrm{S \& P} 500$ futures put options contract with an exercise price of 2,250 and multiplier of $\$ 250$ when the underlying futures
Show graphically the profit and futures price relationships at expiration for the following positions on an S\&P 500 futures options with an exercise price of 2,250 , multiplier of $\$ 250$, and
Explain what arbitrageurs would do if the price of a S\&P 500 futures call with an exercise price of 2,500 ( $\$ 250$ multiplier) were priced at 45 when the underlying futures price was trading at
Explain what arbitrageurs would do if the price of a S\&P 500 futures put with an exercise price of 2,500 ( $\$ 250$ multiplier) were priced at 45 when the underlying futures price was trading at
Explain the mechanics of exercising and closing a five-year T-note futures call options contract with an exercise price of $\$ 120,000$ (for T-note with $\$ 100,000$ face value) when the
Explain the mechanics of exercising and closing a five-year T-note futures put options contract with an exercise price of $\$ 120,000$ (for T-note with $\$ 100,000$ face value) when the
Show graphically the profit and futures price relationships at expiration for the following positions on five-year T-note futures options with an exercise price of $\$ 120,000$ (for T-note with
Explain what arbitrageurs would do if the price of a five-year T-note futures call with an exercise price of $\$ 120,000$ were priced at $\$ 1,750$ when the underlying futures price was trading
What is the actual exercise price and premium for a September Eurodollar futures call with an exercise price quoted in terms of the CME index of $99.00\left(R_{\mathrm{D}}=1.00 \%\right)$ and
What is the actual exercise price and premium for a September Eurodollar futures put with an exercise price quoted in terms of the CME index of $99.00\left(R_{\mathrm{D}}=1.00 \%\right)$ and
Show graphically the profit and futures price relationships at expiration for the following positions on a September euro futures options with an exercise price of \$1.115/euro, contract size of
Show graphically the profit and futures price relationships at expiration for the following positions on a November corn futures options with an exercise price of $\$3.20 /$ bushel, size of 5,000
Show graphically and in a table the profit and T-bond price relationships at expiration for the following positions on OTC T-bond options. In each case, assume that the T-bond spot call and put
Show graphically and in a table the profit and LIBOR relationships at expiration for the following positions on interest rate options. In each case, assume that the interest rate call and put options
Cincy Land Developers is a real estate development company with a shopping mall development project currently valued at $\$ 20$ million. The Cincy Company financed the project by borrowing fromthe
Alcibiades Thoroughbred Inc. is a small horse syndicate that owns a three-year-old racehorse named Butterfly Spread. Based on Butterfly Spread's racing record and potential breeding value, the
Brandy Inc. is a \$100 million oil company. The company has one million shares outstanding and no debt. Expecting the price of oil to increase, Brandy Inc. is planning to raise $\$ 10$ million
Given the following features of the $\mathrm{ABC}$ convertible bond- Coupon rate (annual) $=5 \%$- Face value $=F=\$ 1,000$- Maturity $=10$ years- Callable at $\$ 1,100$- YTM on a
Find descriptions, recent prices, and other information on call and put options for some of the following: an equity index, commodity futures options, index futures options, currency futures options,
Evaluate the following option strategies with a profit graph for some of the call and put options you selected:a. Call purchaseb. Call salec. Put purchased. Put salee. Covered call writef. Covered
Select several of the options you evaluated and bring up their screens. Using the Bloomberg OSA screen, select a call and put on each of the futures options and create a call price curve and put
Find descriptions, recent prices, and other information on an equity warrant. To search for warrants, go to the SECF screen. On the screen, click "Equity" from the "Category" dropdown, click the
Find descriptions, recent prices, and other information on a recent rights offering. To search for warrants, go to the IPO screen. On the screen, Click "Rights" box, and screen by "Offer Stage"
Find descriptions, recent prices, and other information on a convertible bond. Use SECF, SRCH, or CSCH to search for convertible bonds. Upload the convertible's menu screen (convertible's Ticker ).
Use the Bloomberg SWPM screen to create and analyze a cap. Tabs to include in your analysis: Details, Resets, Cashflows, and Curves.
Use the Bloomberg SWPM screen to create and analyze a floor. Tabs to include in your analysis: Details, Resets, Cashflows, and Curves.
Evaluate the strategies below in terms of their profit and stock price relationships at expiration. In your evaluation, include a profit table that breaks down each strategy and identify the name of
Evaluate the following index option positions in terms of their profit and spot index relations at expiration. In your evaluation include a profit table and graph that breaks down each strategy.a. A
Evaluate the following currency futures option strategies in terms of their profit and exchange rate relations at expiration. In your evaluation include a profit table and graph that breaks down each
Suppose shortly after you purchased an XYZ September 50 call contract at $\$ 3$ per call, the price of XYX increased to $\$ 57$ causing the price of your call to rise to $\$ 9$ per call.
Suppose shortly after you purchased an XYZ December 6o call for $\$ 3$ the price of the stock decreased to $\$ 56$ per share on speculation of a future announcement of low quarterly earnings for
Suppose after selling an XYZ December 50 call for $\$ 3$ when the stock was at $\$ 50$, the price of the stock increases to $\$ 55$. Assume at the $\$ 55$ stock price, the December 50 call is
Compare and contrast the following strategies:a. Call Purchase and Leveraged Stock Purchaseb. Put Purchase and Synthetic Putc. In-the-Money Covered Call Write and Out-of-the-Money Covered Call
Suppose after you purchased an XYZ December 40 put at $\$ 2$ the price of XYZ stock dropped from $\$ 40$ per share to $\$ 35$ per share, causing the 40 put to increase to $\$ 6$. Evaluate in
Compare and contrast the following positions:a. Put Purchase and Short Saleb. Naked Put Write and Covered Call Writec. Covered Put Write and Naked Call Writed. Straddle, Strip, and Strap Purchases
List a number of strategies that will yield an Inverted V-shaped profit and stock price relationship at expiration.
List a number of strategies that will yield a V-shaped profit and stock price relationship at expiration.
Select a stock and bring up its equity screen: Stock Ticker . Using the Bloomberg OSA screen, select several call and put options on the stock and evaluate some of the following option strategies on
Examine the historical prices of the stock and one of its call and puts options Select a time period that the options were active.a. Use the Chart screen (Chart ) to create multigraphs for the stock,
Select an S\&P 500 futures option and bring up its equity screen: SPA \( to bring up S\&P futures; type EXS to bring up futures with different expirations; select a futures and bring up is menu
Examine the historical prices of the S\&P futures and some of the futures call and futures put options you selected. Select a time period that the contracts were active.a. Use the Chart screen (Chart
Select a CBT T-note futures (e.g., five-year T-note: FVA ; EXS to find expirations; \(\mathrm{FVH} 7 to load March 2017 five-year T-Note futures). On the selected futures screen, type OSA to bring up
Examine the historical prices of the $\mathrm{T}$-note futures and some of the futures call and futures puts options you selected in Exercise 5. Select a time period that the contracts were
Use CTM to identify the currency futures that have option contracts: Enter CTM; select "Currencies" and then select "Yes" on the "Options" tab to see currency futures with options contracts on them.
Examine the historical prices of currency futures and the futures call and futures put options you selected in Exercise 7.Select a time period that the contracts were active.a. Use the Chart screen
Select a commodity futures option (e.g., a CBT commodity futures option). Use CTM to identify commodities that have option contracts: Enter CTM; Select commodity futures (e.g., corn) and then select
Examine the historical prices of commodity futures and the futures call and futures puts options you selected in Exercise 9.Select a time period that the contracts were active.a. Use the "Chart"
Select a narrow-based spot index (e.g., S\&P Small Cap 600, GNA ). Use SECF to identify indexes that have option contracts: Enter SECF; select index/Stats from "Category" dropdown; click "Opts" tab

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