(a) The bid and ask prices of physical platinum are currently trading at $1,050 / $1,060 per troy ounce. The storage is charged $10 per troy ounce per year payable semi-annually in advance. The interest rate is 4.6% per annum. Calculate the initial value and the fair bid and ask prices of a 12-month forward contract.

(a) The bid and ask prices of physical platinum are currently trading at $1,050 / $1,060 per troy ounce. The storage is charged $10 per troy ounce per year payable semi-annually in advance. The interest rate is 4.6% per annum. Calculate the initial value and the fair bid and ask prices of a 12-month forward contract.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter5: The Time Value Of Money

Section: Chapter Questions

Problem 3P

See similar textbooks

Similar questions

a. On January 1st, 2021, an investor enters into a 9-month forward contract on an asset. In February, April, June, and September, dividends are paid on the asset at a rate of 3%. In other months, dividends are paid at a rate of 2%. All dividend yields are expressed in semiannual compounding. The risk-free rate of interest over the period is 8% per annum with continuous compounding and the asset is worth $45.00 at contract initiation. What is the no-arbitrage price of the forward contract? b. What is the Convenience Yield and what does a higher or lower convenience yield reflect? c. Coming out of the COVID-19 pandemic and considering the Russia-Ukraine war, would you expect the convenience yield to lead to a normal or inverted market for oil futures prices? Explain NEED ANSWERS PLEASE
a. On January 1st, 2021, an investor enters into a 9-month forward contract on an asset. In February,April, June, and September, dividends are paid on the asset at a rate of 3%. In other months,dividends are paid at a rate of 2%. All dividend yields are expressed in semiannual compounding.The risk-free rate of interest over the period is 8% per annum with continuous compounding andthe asset is worth $45.00 at contract initiation.What is the no-arbitrage price of the forward contract? b. What is the Convenience Yield and what does a higher or lower convenience yield reflect? c. Coming out of the COVID-19 pandemic and considering the Russia-Ukraine war, would youexpect the convenience yield to lead to a normal or inverted market for oil futures prices?Explain
For each of the followings, calculate the fair delivery price for the forward contract. a) A forward contract to buy 1,000 ounces of gold in two year's time. The spot gold price is $1226 per ounce, the riskless interest rate is 6% p.a. and storage/security costs for gold bullion are 4%.
Platinum is trading at $1200, but one-year Platinum contracts are trading at $950. NYMEX defines the Platinum contract as 50 ounces/c, $/c, $11,000, $8,000. Your commodities broker quotes you $13/ounce storage and insurance, $160/ounce borrowing fee on platinum, and 8.0% on cash balances - all per annum. JQ Investor decides to arbitrage this price difference using 500 ounces of Platinum. If JQ takes this arbitrage right to delivery, what is the per ounce cost of carry for the transaction (enter as a positive number)
XYZ Corp. entered into a long forward contract for 125 pieces of 1-ounce silver at a fixed price of P1,320 to be delivered one year from now. Its current price is P1,330. After one year, the price of silver was P1,340. What is the purchase price that XYZ will be paying for its order?
The Vaska Company buys a patent on January 1, Year One, and agrees to pay $100,000per year for the next five years. The first payment is made immediately, and the payments aremade on each January 1 thereafter. If a reasonable annual interest rate is 8 percent, what isthe recorded value of the patent? Responses $468,950 $378,425 $431,213 $500,000
Dakota Hi-C Steel signed a contract that will generate revenue of $210,000 now, $226,800 in year 1, and amounts increasing by 8% per year through year 5. Calculate the future worth of the contract at an interest rate of 8% per year. Also, develop the FV function that will correctly determine F for revenues placed in cells B2 through B7.
The bank has granted an overdraft facility to ABC company for the period. The overdraft facility amount is USD 1700000. The interest rate on the overdraft facility taken is 13% per annum, and the overdraft facility commission is set at 3% and is to be paid in advance. It is anticipated that within the first period (i. e. 100 days), the company will benefit from USD 885000 of the overdraft facility granted, and within the next 170 days from USD 685000 of the overdraft facility granted. Calculate the effective annual cost of using the overdraft facility by the companycompany.
Manning Imports is contemplating an agreement to lease equipment to a customer for four years. Manning normally sells the asset for a cash price of $230,000. .Assume that 8% is a reasonable rate of interest. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) What must be the amount of quarterly lease payments (beginning at the commencement of the lease) in order for Manning to recover its normal selling price as well as be compensated for financing the asset over the lease term? (Round your answers to nearest whole number and round percentage answer to 1 decimal place.)
A certain manufacturing plant is being sold and was submitted for bidding. Two bids were submitted by interested buyers. The first bid offered to pay P 200000 each year for 5 years, each payment being made at the beginneing of each year. The second bid offered to pay P 120000 the first year, P 180000 the 2nd year and P 270000 each year for the next 3 years, all payments being made at the beginning of each year. If money is worth 12% compounded annually, which bid should the owner of the plan accept?
When Pacific Inc. bid for a project with the government, the company was offered the following two payment options: Option (A): A payment of $655,000 at the end of 3 years, which is the scheduled completion time for the project. Option (B): $225,000 paid upfront at the beginning of the project and the balance payment in 3 years. If the two payments are financially equivalent and the interest rate is 3.30% compounded semi-annually, calculate the balance payment offered in Option(B).
A firm sells the same material with two separate payment plans.1. According to the 1st payment plan, the payment period is 12 months, each monthly payment is 10 837 000 dollars, and an interim payment of 12 million dollars is required at the end of the 6th month.2. In the 2nd payment plan, the payment period is 18 months, each monthly payment is 7 965 000 dollars and an interim payment of 36 million dollars is required at the end of the 12th month. Annual nominal interest rate for both options is 60%. Which payment plan would you recommend? In payments, discrete compound interest is applied.