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MCQs
- Which of the following can be an underlying for a derivative?
Temperature or climate
Specified
Interest or exchange rate
All of these
- Which of the following can be a notional amount for a derivative?
Share price
Interest rate
Number of currency units
Exchange rate
- Derivatives are obtained
As hedging instrument to hedge some kind of risk
for speculation
either a or b
neither a or b
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- A stock price is currently $100 and at the end of four months it will be ST . A derivative written on this stock pays off expST1/3 in four months. Given that u = 1.15, d = 0.87, and that the risk-free interest rate is 10% p.a. (continuously compounded), answer the following questions using a one-period binomial model (show all the details of your calculations and display the results with four decimal places): Calculate the value of ∆ Calculate the current value of the derivative.NAME ____________________(6) Due _____________ Show work for credit! The demand for product Q is given by Q = 350 - .25P and the total cost of Q by: STC = 20000 + 200Q - 9Q2 + 1/3Q3 a. Find the price function and then the TR function. See Assignment 3 or 4 for an example. b. Write the MR and MC functions below. Remember: MR = dTR/dQ and MC = dSTC/dQ. See Assignment 5 for a review of derivatives c. What positive value of Q will maximize total profit? Remember: Setting MR = MC and solving for Q will give you the Q that maximizes total profit. The value of Q you get should not be zero or negative. d. Use the price function found in (a) to determine the price per unit that will need to be charged at the Q found in (c). This will be the price you should ask per unit for each unit of Q that maximizes total profit. e. How much total profit will result from selling the quantity found in (c) at the price found in (d)? Remember, profit is TR – STC.…Define the term equal-payment-series sinking-fund factor orjust sinking-fund factor?
- Use the definition of the effective rates of interest and discount. j=[Amount at s+t - Amount at s] / [Amt at s]. d_j=[Amount at s+t - Amount at s] / [Amt at s+t]. For 8 items c & d, if j (d_j) is nominal then effective interest (resp. discount) every mth of a period is j^(m)/m (resp. d^(m)/m).1. Mortgage loans whose interest rates change periodically due to changes in market conditions. *Fixed rate mortgageRollover mortgagesBalloon payment mortgagesAdjustable rate mortgage 2. Which option gives the right to buy an asset any time prior or to maturity? *European CallAmerican PutAmerican CallEuropean PutConsider an investor based in the FC that invests in the DC. To hedge the FX risk the FC investor could (select all that are true): A. Engage in a swap for DC at the investment's open date to FC at the invesment's close date B. Engage in a forward DC to FC with an unnknown counter party and no escrow (margin) C. Write a call option FC to DC at today's spot FX rate D. Write a put option FC to DC at today's spot FX E. Exercise a futures contract DC to FC at the date of the investment return trip F. Purchase a futrues contract FC to DC for the return trip Detailed Explanation Please, Thank you!
- A corporate bond maturing in 15 years with a coupon rate of 10.9 percent was purchased for $970 and it now selling for $1,000. 1. What will be its selling price in two years if comparable market interest rates drop 4.9 percentage points? (Hint: Use Appendix A-2 and Appendix A-4 or the Garman/Forgue companion website.) Round Present Value of a Single Amount and Present Value of Series of Equal Amounts in intermediate calculations to four decimal places. Round your answer to the nearest cent. $ 2. Calculate the bond's YTM using Equation 14.5 or the Garman/Forgue companion website. Round your answer to two decimal places. %To eliminate an income gap of 542M, a savings and loan could: (A) conduct an interest rate swap of variable for fixed rate assests of $24M. (B) conduct an interest rate swap of variable for fixed rate assests of $42M. (C) conductan interest rate swap of fixed for variable rate asset of $24M. (D) conudct an interest rate swap of fixed for varable rate assets of $42M.Suppose that you are the Chief Financial Officer of a corporation based in Germany (EUR is thehome currency), having operations globally in all the continents.In the performance of your estimations and calculations you have to analyze the exposures in theforeign currencies. In the appendix there is a table with downloaded information from theEuropean Central Bank (ECB)’s website, the exchange rates of each day of September 2020.Required:i. Present that information in a table for 5 currencies (freely decide whichcurrencies).ii. Discuss the fluctuations and how the exchange rates have changed from the firstto the last day of the period under investigation.iii. Discuss how the following activities of your company are expected to beinfluenced by the expected EUR appreciation for the last quarter of 2020.Explain your answers.i. Domestic sales;ii. Foreign sales denominated in domestic currency;iii. Foreign sales denominated in foreign currency;iv. Importing goods for domestic sales…
- a)define forward rate agreement (FRA). b)describe the structure of FRAs and determine their payoffs. c)explain how to price and value FRAs. d)define interest rate options. e)define interest rate caps, floors, and collars.Consider price quotes and characteristics for two different bonds:Bond A Bond BCoupon Payment Annual AnnualMaturity 3 years 3 yearsCoupon Rate 10% 6%Yield to Maturity 10.65% 10.75%Price 98.40 88.34At the same time, you observe the spot rates for the next three years:Term Spot (Zero-Coupon) Rates1 year 5%2 years 8%3 years 11%Demonstrate whether the price for either of these bonds is consistent with the quotedspot rates. Under these conditions, recommend whether Bond A or Bond B appears tobe the better purchase.If a perpetuity bond has an interest payment of $60 and your required yield is 20%, the MOST you would be willing to pay for the bond is $: a. 300. b. 600. c. 120. d. 6,000. QUESTION 78 Which of these statements about cryptocurrency is the MOST accurate? a. Its role as a medium of exchange is very high. b. The U.S. government serves as a guarantor whenever a cryptocurrency is hacked. c. It does not serve as either a unit of account or as a store of value. d. The supply of cryptocurrency is not managed by any government agency in any country.