Today is September 1. A futures contract on crude oil expiring on December 20 of the same year has a futures price of $44.70. The volatility on the futures contract is 23%, and the continuously compounded risk-free rate is 2%. Assume that there are 365 days in a year. a. What is the Black model price of a European call option on this futures contract, expiring on December 20 and with an exercise price of $46? b. What is the Black model price of a European put option on this futures contract, expiring on December 20 and with an exercise price of $50?
Q: Required Produce a spreadsheet-based report which calculates the necessary level of production under…
A: Therefore, to achieve a return of 20%, method 1 requires a production level of 5920 units, while…
Q: Your brother, Harold, purchases a $45,000 mortgage and pays for it now to get season tickets for…
A: Harold buys the mortgage of $45,000 and purchases the ticket for $290 for 50 years. The mortgage…
Q: FastTrack Bikes, Inc. is thinking of developing a new composite road bike. Development will take six…
A: NPV and IRR are capital budgeting tools that help in deciding whether a capital project should be…
Q: Mariette works in construction. She often borrows more than $9 000 to buy supplies. She wants to get…
A: A loan is a financial arrangement in which one or more people, companies, or other entities lend…
Q: BAS Companies would like to construct and operate a new gaming facility. In addition to the capital…
A: Data given: Investment in net working capital(t=0)= -$175,000 Recovery of net working…
Q: Personal income amounted to $17 million last year. Personal current taxes amounted to $4 million and…
A: Step 1 After taxes, consumers use their remaining funds for consumption of requirements and wants.…
Q: In January 2010, the U.S. Treasury issued a $1000 par, ten-year, inflation-indexed note with a…
A: TIPS is a security issued by the US government that is indexed to inflation so as to ensure the bond…
Q: a) Suppose you have $50,000 to invest in a savings account that pays interest annually with a 5-year…
A: a) To calculate the annual interest rate required to reach a balance of $70,000 after 5 years with…
Q: Suppose C Manufacturings sales increase 20% over the next year. Assuming all asset accounts change…
A: The question can be solved by first determining the forecasted Income statement. This can be done…
Q: Following are four economic states, their likelihoods, and the potential returns: Economic State…
A: In the given case, we have provided the each sate of economy and their respective probabilities and…
Q: Stingray Corporation's 5.1% bonds have a par value of $1,000 and pay interest semi-annually. If the…
A: The price of a bond is determined by a combination of factors, including its coupon rate, the…
Q: A mutual fund with K100 million in assets at the start of the year and with 10 million shares…
A:
Q: You are considering a new product launch. The project will cost $800.000, have a 4-year life, and…
A: Net Present Value: The future value of the cash flows over a given period of time can be calculated…
Q: Evergreen Inc. is considering expanding its greenhouses as there is increased demand for plants this…
A: Step 1 The difference between the present value of cash inflows and outflows over time, or net…
Q: Your factory has been offered a contract to produce a part for a new printer. The contract would…
A: Net present value is the modern method of capital budgeting that is used to determine the present…
Q: Which one of the following statements is correct concerning unsystematic risk? An investor is…
A: In finance there are two main types of risk – systematic risk and unsystematic risk. Systematic…
Q: What makes the refund of state taxes taxable on the federal tax return? a. moving to Texas before…
A: When filing your federal tax return, it is important to understand whether or not any state tax…
Q: How much would $20,000 due in 50 years be worth today if the discount rate were 7.5%?
A: Present value is the estimation of the current value of future cash value which is likely to be…
Q: 3. Everest Pasmina Factory turns its inventory 8 times each year, has average payment period of 30…
A: Everest Pasmina Factory Turns Its Inventory 8 Times Each Year The Average payment period of 30 days…
Q: What is the principal invested at 6.74% compounded semi-annually from which monthly withdrawals of…
A: Step 1 The starting sum is known as the present value, or PV (the amount invested, the amount lent,…
Q: Your uncle told you that he would give you his coin collection. He just got it appraised and it is…
A: Future Value refers to the value of an investment or asset at a specific point in the future,…
Q: An investor can design a risky portfolio based on two stocks, A and B. The standard deviation of…
A: Standard deviation is a statistical measure that indicates how much the data in a set deviates or…
Q: Explain the nature of an option contract.
A: An option contract is a financial derivative instrument that gives the holder the right, but not the…
Q: Consider the cash flows shown. Year Revenues, $ Costs, $ 0 0 -6,000 1 2 25,000 19,000 -30,000 -7,000…
A: MIRR stands for Modified Internal Rate of Return. It is a financial metric that is used to measure…
Q: You and your sister will be receiving an inheritance. You will receive yours in 6 years. Your…
A: Present value is a financial concept that represents the value of a future sum of money in terms of…
Q: What exactly is the DCR and how to lenders use it? Is there is a range they would find acceptable?…
A: DCR stands for Debt Coverage Ratio, which is a financial ratio used by lenders to evaluate the…
Q: The Fritzes are buying a house that sells for $74,000. The bank is requiring a minimum down payment…
A: Here, Cost of Property is $74,000 Required Down Payment is 20% Closing Cost Point is 4 points
Q: Victor received an 8-year subsidized student loan of $29,000 at an annual interest rate of 4.25%. If…
A: Loan: It represents the amount provided by the lender to the borrower in exchange for repayment of…
Q: You are the lucky winner of the $30 million state lottery. You can take your prize money either as…
A: Present value (PV) is the current value of a future sum of money or cash flow stream, discounted at…
Q: The cost of a call option on HSB stock with a strike price of $45 is $1.08. The option has 2 months…
A: Call option The terms of a call option are an agreement between a customer and a seller to buy a…
Q: a manicure costs $40 if the tax is 6% and the person wants to leave a 25% tip how much will there…
A: When you avail of a service or buy a product you often have to pay tax on that. This is a form of…
Q: As the project manager, you have been asked by AstraZeneca to assess the viability of two (2)…
A: The NPV of a project measures its profitability by discounting its future cash flows at an assumed…
Q: Oil is selling at a spot price of $41.98 per barrel. Oil can be stored at a cost of $0.42 per barrel…
A:
Q: ieR Pharmaceuticals Ltd. is considering investing in a new production line for its pain-reliever…
A: WACC is calculated by multiplying the cost of each specific source of finance by its proportion in…
Q: Doha plc has some surplus funds that it wishes to invest in bonds. The company requires a return of…
A: A bond is a debt security that represents a loan made by an investor to a borrower, typically a…
Q: You have just been hired as a loan officer at a national bank. Your first assignment is to calculate…
A: Data given: PV=Loan amount=$30000 Rate=6% Monthly rate=6%/12=0.005 N= 4 years nper=4*12=48…
Q: (Annual percentage yield) Compute the cost of the following trade credit terms using the compounding…
A: Effective Annual Rate: It represents the true rate of interest on a savings account or on charged…
Q: Problem 4. Record the treasury stock transactions (given below) under the cost method: Transactions:…
A: Treasury stock is that stock or shares which are being reacquired or repurchased by the business…
Q: Project the OCFs for the next three years considering incomes of $165k, $170K and $180 respectively,…
A: Free cash flow (FCF) is the money a business makes after subtracting the cash it must spend to run…
Q: International financial management: MCQ An UK- based MNC expect to receive £20,000 from domestic…
A: The exchange rate is the rate at which one currency can be directly traded for another currency. It…
Q: You establish a straddle on ZLAB using a call and a put option with the same expiration date and the…
A: A Straddle is an options trading strategy that involves buying both a call option and a put option…
Q: A company must decide if a proposed project is financially justifiable. To help make this decision,…
A: In finance, IRR stands for Internal Rate of Return, which is a metric used to evaluate the…
Q: You are the loan department supervisor for a bank. This installment loan is being paid off early,…
A:
Q: Your small US multinational business forecasts 25,000 Euro expenses to be paid in 6 months. You…
A: Step 1 An investment that serves to reduce your financial risk is a hedge. Holding an investment…
Q: Stock A's beta is 1.5 and Stock B's beta is 0.5. Which of the following statements must be true…
A: The Capital Asset Pricing Model (CAPM) states that the expected return on a security is directly…
Q: 2. A bond pays semi-annual coupons with c(2) = .085. Assume the face value equals $10,000 and…
A: A bond amortization tables shows the amount of cash paid to bond holders, the interest expense used…
Q: Sonia has been offered an investment project that produces cash flows of $14,000 that she receives…
A: Net Present Value - It is the difference between the present value of cash outflow and present value…
Q: 1. How many shares are offered for subscription? How much cash can be generated from this…
A: 1. To solve for the number of shares offered for subscription, we need to first compute for the…
Q: Investment A is an annuity and Investment B is an annuity due. All else equal, which one will have…
A: An annuity is a series of payments made or received at equal intervals. An ordinary annuity has…
Q: You own a bond with a face value of $1000 and a conversion price of $50. What is the conversion…
A: In the given case, we have given the face value of bond and a conversion price . It means face…
Today is September 1. A futures contract on crude oil expiring on December 20 of the same year has a futures price of $44.70. The volatility on the futures contract is 23%, and the continuously compounded risk-free rate is 2%. Assume that there are 365 days in a year.
a. What is the Black model price of a European call option on this futures contract, expiring on December 20 and with an exercise price of $46?
b. What is the Black model price of a European put option on this futures contract, expiring on December 20 and with an exercise price of $50?
Step by step
Solved in 2 steps with 2 images
- Suppose that the futures price is 20 the strike place of nine month European call on the futures is $19 and the frisky rate is 8% per annum and the value of the option is three dollars. What is the value of the put option with the same street, price and time to maturity.It is now January. The current interest rate is 2%. The June futures price for gold is $1,500, whereas the December futures price is $1,510. Is there an arbitrage opportunity here? If so, how would you exploit it?Consider Commodity Z, which has both exchange-traded futures and option contracts associated with it. As you look in today's paper, you find the following put and call prices for options that expire exactly six months from now: Exercise Price Put Price Call Price $ 40.00 $ 0.59 $ 8.73 $ 45.00 $ 1.93 $ - $ 50.00 $ - $ 2.47 a. Assuming that the futures price of a six-month contract on Commodity Z is Fo, 0.5 = $48, what must be the price of a put with an exercise price of $50 in order to avoid arbitrage across markets? Similarly, calculate the "no arbitrage" price of a call with an exercise price of $45. In both calculations, assume that the yield curve is flat and the annual risk-free rate is 6 percent. b. What is the "no arbitrage" price differential that should exist between the put and call options having an exercise price of $40? Is this…
- Today is May 1. Your firm purchased $15,000,000 face value of 180 day commercial paper today for a price of $14,550,000. You will need to liquidate the position in 120 days and you believe interest rates may move against you in the meantime and you decide to use euro$ futures to hedge the position. a) How many futures contracts should you use to fully hedge and should you buy or sell the futures contracts today if the September euro$ futures quote is at 98.55 and the December euro$ futures quote is at 97.35? Should you use the September or the December contract? b) One hundred and twenty days later, at the end of August the commercial paper is priced at $14,800,000 and the futures price quote for the September euro$ futures quote is at 98.95 and the December euro$ futures quote is at 98.25. What is the total dollar gain or loss on your futures position? What is the percentage interest rate earned on the commercial paper investment expressed as an effective annual rate or EAR including…Today is January 3. Your friend David has just bought a futures contract on a stock index, and the contract specifies one year to expiration. The current share price is $80, and the annually compounded interest rate is 10%. The stock will pay quarterly dividends of $2 during the next year, with dividends payments on the following dates: January 25 April 25 July 25 October 25 Assume that this is a non-leap year. c. What is the value of this futures contract on February 17 if the spot price turns out to be $90 on that day? d. Suppose that, instead of paying a quarterly dividend of $2, the stock index has an annual dividend yield of 10%. The continuously compounded interest rate is 10.52%. What is the price of the index futures on January 3? What is its value on February 17 when the index turns out to be $90?Consider a six-month European call option on the spot price of gold, that is, an option to buy oneounce of gold in the spot market in six months. The strike price is $1, 200, the six-month futuresprice of gold is $1, 240, the risk-free rate of interest is 5% per annum, and the volatility of thefutures price is 20%. The option is the same as a six-month European option on the six-monthfutures price. Calculate the value of this option.
- The spot price of gold today is $1, 507 per troy ounce, and the futures price for a contract maturing in seven months is $1, 548 per troy ounce. If Golddy Plc puts on a futures hedge today and lifts the hedge after five months. a) Calculate the cost of carry for gold. b) If the spot price of gold in five months' time turns out to be $1,520. What will be the futures price five months from now? c) How much is the basis in five months' time?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.Suppose that the current spot price of corn is $720 per bushel. The one year risk-free rate is 6% per annum. The futures price for delivery of one bushel of corn in one year’s time is $792 per bushel. Assume that net costs (storage costs minus convenience yield) are $15 per bushel (over the next one year). Is the futures contract correctly priced? If not, what is the theoretically correct price for the futures contract and how could you take advantage of any mispricing? Please show full steps and explain.
- The following table shows the futures price data today for Commodity X, and you purchased a futures contract today at the settlement price. (Contract size : 30,000 kg of Commodity X) Open High Low Settlement Change Open Interest Today $16.28 $16.33 $16.25 $16.29 $(0.02) 6,338 Calculate the total value of this futures contract. If the initial and maintenance margin requirements are 15% and 10% of the contract value respectively, calculate the amount of deposit required to execute this contract. If the prices of the commodity X in the next 3 trading days are : $16.27, $16.40 and $16.97, calculate the profit/loss per kilogram of commodity X, total value of the contract, and the mark-to-market settlement. If additional margin is required, indicate when it is necessary and the additional deposit amount.Consider these futures market data for the June delivery S&P 500 contract, exactly one year from today. The S&P 500 index is at 1,950, and the June maturity contract is at F0 = 1,951.a. If the current interest rate is 2.5%, and the average dividend rate of the stocks in the index is 1.9%, what fraction of the proceeds of stock short sales would need to be available to you to earn arbitrage profits?b. Suppose now that you in fact have access to 90% of the proceeds from a short sale. What is the lower bound on the futures price that rules out arbitrage opportunities?c. By how much does the actual futures price fall below the no-arbitrage bound?d. Formulate the appropriate arbitrage strategy, and calculate the profits to that strategy.Today is January 3. Your friend David has just bought a futures contract on a stock index, and the contract specifies one year to expiration. The current share price is $80, and the annually compounded interest rate is 10%. The stock will pay quarterly dividends of $2 during the next year, with dividends payments on the following dates: January 25 April 25 July 25 October 25 Assume that this is a non-leap year. What is the futures price on this contract on January 3? What is the cost-of-carry on this futures contract on January 3? What is the value of this futures contract on February 17 if the spot price turns out to be $90 on that day? Suppose that, instead of paying a quarterly dividend of $2, the stock index has an annual dividend yield of 10%. The continuously compounded interest rate is 10.52%. What is the price of the index futures on January 3? What is its value on February 17 when the index turns out to be $90?