Assume that the spot price of an underlying asset is Php250 and suppose the 10% is the annual risk-free interest rate. At equilibrium, the 6-month forward price of the underlying asset should be nearest to Php275.00 Php262.50 Php256.25 Php250.00
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- Answer the following question and give the specific process: What is the value of a derivative that pays off $100 in six months if an index is greater than 1,000 and zero otherwise? Assume that the current level of the index is 960, the risk-free rate is 8% per annum, the dividend yield on the index is 3% per annum, and the volatility of the index is 20%. (Hint: Use Binary options)1. Suppose a financial asset, ABC, is the underlying asset for a futures contract with settlement of 6 months from now. You know the following about this financial asset and futures contract in the cash market ABC is selling for $80; ABC pays $8 per year in two semiannual payments of $4, and the next semiannual payment is due exactly 6 months from now; and the current 6month interest rate at which funds can be loaned or borrowed is 6%. a) Compute for the profit for the transaction? b) What is the theoretical (or equilibrium) futures price? c) What action would you take if the futures price is $837 d) What action would you take if the futures price is $76? SHOW SOLUTIONS PLEASE DONT USE MSEXCELAssume oat forward prices over the next 3 years are $2.30, $2.40, and $2.33, respectively. Effective annual interest rates over the same period are 5.5%, 5.8%, and 6.1%. What is the 3-year swap price if the delivery in year 1 is 100,000 bushels, the delivery in year 2 is 125,000 bushels and the delivery in year 3 is 175,000 bushels?
- The DAX cash price is 15,000, the interest rate or ‘risk-free’ rate is -0.50% and the dividend yield on the DAX index is 2.0% presently. Calculate the bases and expected prices of the 6 and 12-month DAX financial futures contracts.Consider a 1-year semi-annually paid interest rate swap, the notional is £1,000,000, the swap rate is 3.0%, the floating rate is GM LIBOR + 1%. On the market, the 6M LIBOR spot and its 6-month maturity forward are 3.0% and 1.0%, respectively. Sketch the cash-flow diagram of the fixed-leg.The spot price of oil is $40 per barrel and the cost of storing a barrel of oil for one year is $3.3, payable at the end of the year. The risk-free interest rate is 2.6% per annum, continuously compounded. What is an upper bound for the one-year futures price of oil? Your answer should be correct to one decimal place. Assume there are no transaction costs involved in arbitraging over-priced futures contracts.
- An asset currently costs $432. The risk-free rate in the economy is 2.8% per year. What should be the price of a newly-created futures contract on this asset if the futures contract matures in 8 months? Round to the nearest penny. the answer should be 440.03. How do you get that?Work out the value of European Call on a risky asset A, currently selling at $600. The European Call has a term to maturity of 1.5 years and a strike price of $675. SD(dA/A), the volatility of returns on the risky asset is 18% per year, and the discrete risk-free rate is 0.9% per year1. Suppose a financial asset, ABC, is the underlying asset for a futures contract with settlement of 6 months from now. You know the following about this financial asset and futures contract in the cash market ABC is selling for $80; ABC pays $8 per year in two semiannual payments of $4, and the next semiannual payment is due exactly 6 months from now; and the current 6month interest rate at which funds can be loaned or borrowed is 6%. What action would you take if the futures price is $83? What action would you take if the futures price is $76?
- An investor buys a ($1000 FV) Treasury Strip security with 11 years to maturity at a yield of 5.1%. Two years later the yield to maturity on the strip is 4.0% and the investor decides to sell. What is the compounded annual rate of return on the investment over the investment horizon? For simplicity assume all yields in the question are quoted with annual compounding. Enter your answer as percent to two decimal places, but do not include the % sign.1. Suppose a financial asset, ABC, is the underlying asset for a futures contract with settlement of 6 months from now. You know the following about this financial asset and futures contract in the cash market ABC is selling for $80; ABC pays $8 per year in two semiannual payments of $4, and the next semiannual payment is due exactly 6 months from now; and the current 6month interest rate at which funds can be loaned or borrowed is 6%. d) What action would you take if the futures price is $76?Consider the futures contract written on the S&P 500 index and maturing in one year. The interest rate is 3%, and the future value of dividends expected to be paid over the next year is $35. The current index level is 2,000. Assume that you can short sell the S&P index.a. Suppose the expected rate of return on the market is 8%. What is the expected level of the index in one year?b. What is the theoretical no-arbitrage price for a 1-year futures contract on the S&P 500 stock index?c. Suppose the actual futures price is 2,012. Is there an arbitrage opportunity here? If so, how would you exploit it?