QUESTION 1: (a) Mention three differences between a Forward and future contract. (b) Differentiate between price...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
QUESTION 1: (a) Mention three differences between a Forward and future contract. (b) Differentiate between price and value of a forward contract QUESTION 2: Pleas provide the following: (a) Definition of an option (b) Difference between a call and a put (c) Graph the payoff for a long Call and a Short Put QUESTION 3: A stock has a current price of $115.83. A European call option on the stock expires in eight weeks and has a d1=-0.44. If volatility changes by 0.03, approximate the amount the call price is expected to change. QUESTION 4: The following term structure of LIBOR is given Term Rate 90 days 5.00% 180 days 5.2% 270 days 5.4% 360 days 5.7% a) Find the rate on a new 6x9 FRA. b) Consider an FRA that was established previously at a rate of 5.2% with a notional amount of $80 million. The FRA expires in 180 days, and the underlying is 180-day LIBOR. Find the value of the FRA from the perspective of the party paying fixed and receiving floating as of the point in time at which the term structure applies. QUESTION 5: Suppose you are long on a 180-day LIBOR-based FRA (receive floating) with notional amount of $80,000,000. At expiration, LIBOR is 10 percent and the strike rate (the agreedupon rate) is 8 percent. a) Assuming a 360-day year, what is the dollar payoff on this FRA? b) How would your answer change if you were short (receive fixed)? QUESTION 6: Consider a one-period, two-state world. Let the current stock price be $40 and the risk-free rate be 10% percent. Each period the stock price can go either up by 25 percent or down by 15 percent. A call option expiring at the end of the first period has an exercise price of $45. a) Determine the two possible stock prices for the next period b) Calculate the current option price under one-step binomial model QUESTION 7: Consider a $50 million notional amount interest rate swap with a fixed rate of 10%, paid quarterly on the basis of 90 days in the quarter and 360 days in the year. The first floating payment is 15.5%. Calculate the first net payment and identify which party pays. (Structure of a Typical Equity Swap) Solution: (Structure of a Typical Interest Rate Swap) Floating payment: $50,000,000(0.155) (90/360) = $1,937,500 Fixed payment: $50,000,000 (0.1) (90/360) = $1,250,000 The net payment is that the floating payer pays $687,500 QUESTION 8: On June 17 of a particular year, an American watch dealer decided to import 100,000 Swiss watches. Each watch costs SF 225. The dealer would like to hedge against a change in the dollar/Swiss franc exchange rate. The forward rate was $0.3881 dollars for one Swiss franc. Determine whether the dealer got a profit of a loss if at expiration of the forward, the spot rate was $0.4433. QUESTION 1: (a) Mention three differences between a Forward and future contract. (b) Differentiate between price and value of a forward contract QUESTION 2: Pleas provide the following: (a) Definition of an option (b) Difference between a call and a put (c) Graph the payoff for a long Call and a Short Put QUESTION 3: A stock has a current price of $115.83. A European call option on the stock expires in eight weeks and has a d1=-0.44. If volatility changes by 0.03, approximate the amount the call price is expected to change. QUESTION 4: The following term structure of LIBOR is given Term Rate 90 days 5.00% 180 days 5.2% 270 days 5.4% 360 days 5.7% a) Find the rate on a new 6x9 FRA. b) Consider an FRA that was established previously at a rate of 5.2% with a notional amount of $80 million. The FRA expires in 180 days, and the underlying is 180-day LIBOR. Find the value of the FRA from the perspective of the party paying fixed and receiving floating as of the point in time at which the term structure applies. QUESTION 5: Suppose you are long on a 180-day LIBOR-based FRA (receive floating) with notional amount of $80,000,000. At expiration, LIBOR is 10 percent and the strike rate (the agreedupon rate) is 8 percent. a) Assuming a 360-day year, what is the dollar payoff on this FRA? b) How would your answer change if you were short (receive fixed)? QUESTION 6: Consider a one-period, two-state world. Let the current stock price be $40 and the risk-free rate be 10% percent. Each period the stock price can go either up by 25 percent or down by 15 percent. A call option expiring at the end of the first period has an exercise price of $45. a) Determine the two possible stock prices for the next period b) Calculate the current option price under one-step binomial model QUESTION 7: Consider a $50 million notional amount interest rate swap with a fixed rate of 10%, paid quarterly on the basis of 90 days in the quarter and 360 days in the year. The first floating payment is 15.5%. Calculate the first net payment and identify which party pays. (Structure of a Typical Equity Swap) Solution: (Structure of a Typical Interest Rate Swap) Floating payment: $50,000,000(0.155) (90/360) = $1,937,500 Fixed payment: $50,000,000 (0.1) (90/360) = $1,250,000 The net payment is that the floating payer pays $687,500 QUESTION 8: On June 17 of a particular year, an American watch dealer decided to import 100,000 Swiss watches. Each watch costs SF 225. The dealer would like to hedge against a change in the dollar/Swiss franc exchange rate. The forward rate was $0.3881 dollars for one Swiss franc. Determine whether the dealer got a profit of a loss if at expiration of the forward, the spot rate was $0.4433.
Expert Answer:
Posted Date:
Students also viewed these finance questions
-
A Continuous fractional column, operating at atmospheric pressure, is to be designed to separate a mixture containing 20 per cent benzene in toluene into an overhead product containing 90 percent...
-
Victoria Goldman is a financial advisor who manages money for high net worth individuals. For a particular client, Victoria recommends the following portfolio of stocks. a. Calculate the portfolio...
-
What is an example of perceived opportunity as one of the three elements causing a person to commit fraud?
-
In Example 13-1, we assumed we were going to use all available solvent. There are other alternatives. Determine if the following alternatives are capable of producing outlet water of desired acetic...
-
The following information is available for Sunset Valley Hotel for July 2013: The following is a list of checks and deposits recorded on the books of the Sunset Valley Hotel for July 2013: Other...
-
william's assembly unit has decided to use a P - chart with 2 - sigma control limits to monitor the proportion of defective castings produced by their production process. What is the upper control...
-
List FIVE (5) principles of learning applicable to training and development in organizations with a brief description.?
-
It is important for users of financial statements to be aware of different ____________ methods and to question why one method was ____________ rather than another.
-
Which of the following was not a signal in Enrons financial statements of its financial problems? (a) Receivables increased as a percentage of sales. (b) Its debt-to-equity ratio decreased over time....
-
Is the intermingling of a companys assets with those of a major shareholder, director, or company officer illegal? Is it unethical? Or is it both illegal and unethical? Explain your answer.
-
According to the SEC, BellSouths improper accounting for foreign payments in contravention of the Foreign Corrupt Practices Act (FCPA) included all of the following, except: (a) The use of fabricated...
-
According to GAAP, a company is allowed to recognize a profit in its financial statements in respect of the increase in the price of its own shares. True/False
-
Ellie owns a 1926 Rolls Royce and in order to raise a deposit for her new house she decided to sell the Rolls Royce to Sam, a mechanic for 500,000 TK as part the deal Ellie agreed to have it restored...
-
What is the role of business risk analysis in the audit planning process?
-
Which of the following is not true about producer surplus? a. Producer surplus is the difference between what sellers are paid and their cost of producing those units. b. Producer surplus is shown...
-
In a supply and demand graph, the triangular area between the demand curve and the supply curve lost because of the imposition of a tax, price ceiling, or price floor is a. the consumer surplus. b....
-
In a supply and demand graph, the triangular area under the demand curve but above the supply curve is a. the consumer surplus. b. the producer surplus. c. the marginal cost. d. the deadweight loss....
Study smarter with the SolutionInn App