FIN620_Quiz HW 10

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Apr 3, 2024

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Quiz HW 10 - Derivatives Question 1 1/ 1 point Assume that Gold had a price on day zero of $2,150/ounce and that both the short and long futures position initially were required to post a margin of $2,500. On day one the price of gold changes to $1,850. What is new value of the long futures margin account? Answer: 2,200.00 v P View question 1 feedback Question 2 2 / 2 points SPY tracks the S&P Index and is currently at $416.5. The risk-free rate for 6-months is 0.6%. What should be the Futures price for delivery of 100 SPY shares 6-months from now? Round the answer to two decimals. Answer: 419.00 v > View question 2 feedback Question 3 2 / 2 points For firm needs 1,000,000 barrels of WTI crude oil 6 months from today. You enter into a forward contract to receive WTI crude oil 6 months from today. The current price of a barrel of WTl is $48, the cost of storage for 6-months is $4.0, and the risk-free rate of return is 2% for 6 months. The cost of storage needs to be paid today. What will the maximum contracted price today be

for the payment to be made 6-months from now for 1,000,000 barrel delivery? You will pay the counterparty the contracted price 6-months from now. Assume zero transaction costs. Answer: 53,040,000.00 v Question 4 1/ 1 point From Investopedia: A butterfly spread is an options strategy combining bull and bear spreads, with a fixed risk and capped profit. These spreads, involving either four calls, four puts or a combination, are intended as a market-neutral strategy and pay off the most if the underlying does not move prior to option expiration. You have set up a butterfly spread on IBM stock by writing (selling) two call options at strike price $150, and also buying one call at strike price $130 and buying another call at strike price $170. On maturity date the price of IBM is $152.0. What is your net payoff on maturity date? Only maturity date payoffs, you do not have to consider the money you received and paid in setting up the butterfly spread. If your answer is negative, for example -20, then enter it as -20 rather than something else like (20). Answer: 18.00 v Question 5 1/ 1 point From Investopedia: In a bull call spread strategy, an investor simultaneously buys calls at a specific strike price while also selling the same number of calls at a higher strike price. Both call options will have the same expiration date and underlying asset. This type of vertical spread strategy is often used when an investor is bullish on the underlying asset and expects a moderate rise in the price of the asset. Using this strategy, the investor is able to limit their upside on the trade while also reducing the net premium spent (compared to buying a naked call option outright). You have purchased 50 call options on IBM at a strike price of 150, while also selling 50 call options on IBM at a strike price of 170 (same maturity date). On maturity date the price of IBM is $161.4. What is your net payoff on maturity date? Only maturity date payoffs, you do not have to consider the money you received and paid in setting up the bull call spread.

Answer: 570.00 v Question 6 1/ 1 point The inflation rate in country A is 5% per annum. The inflation rate in country B is 8.0% per annum. The current spot rate is 1 unit of currency of country A can purchase 7 units of currency of country B. Suppose Purchasing Power Parity holds. 1 unit of currency of country A will be able to purchase how many units of currency of country B one year from today? Round the answer to two decimals. Answer: 720 v D> View question 6 feedback Question 7 1/ 1 point A firm has 3 classes of debt: senior, juniorl and junior2. According to the debt covenants, in case of bankruptcy, juniorl and junior2 divide the value available in the ratio of 3:2 ($3 out of every $5 goes to juniorl etc.) after senior debt has been paid. The outstanding amount of senior debt is $1,650,000. The firm goes bankrupt and its assets sell for $4,600,000. How much does junior2 debt receive? (Assume Modigliani-Miller holds, that is there are no transaction costs etc.) Answer: 1,180,000.00 v D View question 7 feedback Question 8 1/ 1 point

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One popular strategy for traders is to sell "covered calls". A covered call refers to a financial transaction in which the investor selling call options owns an equivalent amount of the underlying security. To execute this an investor holding a long position in an asset then writes (sells) call options on that same asset to generate an income stream. https:/www.investopedia.com/terms/c/coveredcall.asp A trader owns 1,000 shares of IBM which currently has a price of $35. She sells 1,000 covered calls of IBM with strike price of $38.40 for a premium (price) of $2.60 per call and maturity 6 months from today (each call contract gives owner right to purchase one share at strike price). On maturity date the price of IBM is $37. On maturity date, how much will be the value of her IBM shares and premium she received (assume the premium was not invested and has not changed in the 6 months). Answer: 37,600.00 v D View question 8 feedback Attempt Score:10 / 10 - 100 % Overall Grade (highest attempt):10 / 10 - 100 %