3. Why is the initial value of a futures contract zero? a. impossible to tell b. the futures is immediately marked-to-market c. you do not pay anything for it d. the basis will converge to zero e. the expected profit is zero

Q: You are preparing to produce some goods for sale. You will sell them in one year and you will incur…

A: To calculate the selling price after 1 year we will use the time value of money formula as follows:…

Q: Which statement is true about the difference between futures and forward contracts?

A: The true statement about the difference between future and forward contracts is:3. Futures contracts…

Q: Futures trading halts when daily price limits are reached. O True O False

A: Futures trading:- Futures trading are financial derivatives that bind the parties to trade an item…

Q: 19. Investors in the secondary market seek A. Low returns on long-term investment B. High returns on…

A: A secondary market is a market in which buying and selling of securities take place. In this, those…

Q: 14. True or False: The value of a swap contract is generally zero at origination and can change…

A: A swap contract is a derivative instrument where the signing parties exchange cash flows or…

Q: An inflation hedge is an asset that increases in value at a rate equal to or greater than the rate…

A: Hedging is technique of reducing risk. This reduction in risk also results typically in a decrease…

Q: Which of the following statements is correct?  A. An option seller makes more profits than an…

A: The future contract is a type of derivative contract which will result into no profit no loss on the…

Q: Compared to short hedging, the advantage to using a put option is: A. Put options involve a…

A: A put option is a contract giving the owner the right, but not the obligation, to sell the…

Q: The following payoffs are observed in frictionless markets: Select one: O A. O B. O C. O D. Dividend…

A: Solution:Arbitrage means earning profit without taking risk and without investing money.At…

Q: A disadvantage of holding TIPS is A If inflation does not occur then the value of holding TIPS…

A: Several statements have been given as disadvantages of TIPS. We have to find the correct one.

Q: Which of the following is NOT true O a. Futures contracts nearly always last longer than forward…

A: The following is not true:Answer: Futures contracts nearly always last longer than forward…

Q: Which of the following is true? O The convenience yield is strictly positive. O The convenience…

A: Convenience yield is the implied return when an ivestor holds any consumption asset such as…

Q: After paying the initial margin, a futures investor does not have to pay any additional money until…

A: Initial margin is the amount of margin which needs to be deposited by the investor before entering…

Q: Question 3 Futures By using futures a firm can protect against increase in raw material prices,…

A: Future contract is a type of derivative security which will exposed the individual to the obligation…

Q: If spot price falls below the exercise price, seller of a futures contract makes a ______ while…

A: Futures . Futures are derivative that are entered to mitigate risk with regard to price movements.…

Q: What is an interest-rate futures contract? How does it differ from an interest-rate forward…

A: Since you have posted multiple independent questions, according to the guidelines, only the first…

Q: The basis is defined as the spot price minus the futures price. A trader is hedging the sale of an…

A: We have to find the impact of the unexpected fall in basis on the short position.

Q: A position in T-bond futures should be used to hedge falling interest rates and a position in T-bond…

A: A long position in a financial instrument means the holder of the position owns a positive amount of…

Q: 6. Which one of the following statements is incorrect regarding the margining of exchange-trade…

A: The future contract is a type of exchange traded contract which is standardised in nature and which…

Q: Compared to long hedging, the advantage to using a call option is: A. Call options involve a…

A: Call option contract gives the contract holder a right to purchase shares or stocks at some future…

Q: QUESTION 21 How does the presence of a convenience yield typically impact the pricing of futures…

A: Solution:Convenience yield means the benefit or satisfaction level of having the underlying asset…

Q: a) We can eliminate market exposure from our portfolio by shorting S&P500 index. Why bother with…

A: If the elimination of market exposure from our portfolio can be done by shorting the S&P500…

Q: Consider the model of Black and Scholes. Consider the cash=or-nothing put option V (T) = 1{S(T)<= K}…

A: Premiums are the result of adding the intrinsic and time value of an option. The difference between…

Q: The basis is defined as spot minus futures prices.   Evaluate which of the following is most…

A: The basis is described as the disparity between spot and futures prices based on the information…

Q: Multiple Choices: 1. What happens to a premium for a call option if the underlying futures price…

A: We’ll answer the first question since the exact one wasn’t specified. Please submit a new question…

Q: 28. Which of the following is not correct regarding the risk considerations of a bond portfolio? O…

A: A bond portfolio is an assortment or collection of bonds that an investor or organization owns. It…

Q: hich of the following is TRUE?  a. The convenience yield measures the average return earned by…

A: Convenience yield is very important in futures and forwards because it shows how much is profit…

Q: The basis is defined as the spot price minus the futures price. A trader is hedging the sale of an…

A: The objective of the question is to understand the impact of a decrease in the basis on a trader who…