PRIN.OF CORPORATE FINANCE >BI<
12th Edition
ISBN: 9781260431230
Author: BREALEY
Publisher: MCG CUSTOM
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Chapter 26, Problem 18PS
Summary Introduction
To compute: The dollar value of 9 months for futures.
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Chapter 26 Solutions
PRIN.OF CORPORATE FINANCE >BI<
Ch. 26 - Vocabulary check Define the following terms: a....Ch. 26 - Prob. 2PSCh. 26 - Prob. 3PSCh. 26 - Futures prices Calculate the value of a six-month...Ch. 26 - Prob. 5PSCh. 26 - Prob. 6PSCh. 26 - Prob. 7PSCh. 26 - Prob. 8PSCh. 26 - Prob. 9PSCh. 26 - Prob. 10PS
Ch. 26 - Hedging You own a 1 million portfolio of aerospace...Ch. 26 - Prob. 12PSCh. 26 - Prob. 13PSCh. 26 - Catastrophe bonds On some catastrophe bonds,...Ch. 26 - Futures contracts List some of the commodity...Ch. 26 - Prob. 16PSCh. 26 - Prob. 17PSCh. 26 - Prob. 18PSCh. 26 - Prob. 20PSCh. 26 - Prob. 21PSCh. 26 - Prob. 22PSCh. 26 - Hedging What is meant by delta () in the context...Ch. 26 - Futures and options A gold-mining firm is...Ch. 26 - Prob. 25PSCh. 26 - Hedging Price changes of two gold-mining stocks...Ch. 26 - Risk management Petrochemical Parfum (PP) is...Ch. 26 - Total return swaps Is a total return swap on a...Ch. 26 - Prob. 30PSCh. 26 - Prob. 31PSCh. 26 - Prob. 32PSCh. 26 - You are a vice president of Rensselaer Advisers...
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- 3. Suppose a financial asset, ABC, is the underlying asset for a futures contractwith 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 $120; ABC pays $18 per year in two semiannual payments of $9, and the next semiannual payment is due exactly 6 months from now; and the current 6-month interest rate at which funds can be loaned or borrowed is 6%. a) What is the theoretical (or equilibrium ) futures price? b) Suppose that ABC pays an interest quarterly instead of semiannually, What would be the theoretical futures price for 3 months settlement? c) Suppose that the borrowing rate is 8% and the 6-month lending rate is 6%, What is the boundary for the theoretical futures price? SHOW YOUR SOLUTIONS, PLEASE DONT USE MS EXCELarrow_forwardSuppose that the nine-month SOFR interest rate is 8% per annum and the six-month SOFRinterest rate is 7.5% per annum. Estimate the three-month SOFR futures price quote for acontract maturing in six months.arrow_forwardThe 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?arrow_forward
- 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.arrow_forwardA futures price is currently 65, its volatility is 22% per annum, and the risk-free interest rate is 5.5% per annum. What is the value of a five-month European put on the futures with a strike price of 60?arrow_forwardWhat is the risk-neutral valuation of a six-month Euro-pean put option to sell a security for a price of 100 when the current priceis 105, the interest rate is 10%, and the volatility of the security is .30?arrow_forward
- Suppose that you trade a forward contract today that matures after one year. The forward price is $105 and the simple interest rate is 7 percent per year. If after six months from today, the spot price is going to be $125 and the value of the forward contract is $20, the arbitrage profit that you can make today by trading one forward contract and other securities is?arrow_forward1. 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?arrow_forwardSuppose investors can earn a return of 2% per 6 months on a Treasury note with 6 months remaining until maturity. What price would you expect a 6-month maturity Treasury bill to sell for?arrow_forward
- One-year Treasury bills yield 6 percent, while Treasury notes with 2-year maturities yield 6.7 percent. If the expectations theory holds (that is, the maturity risk premium is zero), what is the market’s forecast of what 1-year T-bills will be yielding one year from now?arrow_forwardA two year treasury security currently earns 1.77%. Over the next two years, the real risk free rate is expected to be 1.30% per year and the inflation premium is expected to be 0.30% per year. Calculate the maturity risk premium on the two-year treasury security.arrow_forwardSuppose that the September 90-day Eurodollar futures contract has a price of $96.4 today. A firm expects to borrow $50 million for 3 months in September at the LIBOR, and intends to use the Eurodollar futures contract to hedge its future borrowing rate. a) What rate can the firm secure today by using the Eurodollar contract? b) Will the firm go long or short the Eurodollar contract? How many contracts will it buy/sell? c) Suppose that the spot 3-month LIBOR is 4% (annualized) in September. Explain how the firm met its objective of locking in a return on its future borrowing.arrow_forward
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