7. Futures optionsSuppose Kenji expects interest rates to increase and purchases a put option on Treasury bond futures from Lucia. The exercise price on Treasury bondfutures is 96-00. The put option is purchased at a premium of 2-00. Assume that interest rates do increase and, as a result, the price of the Treasurybond futures contract decreases over time to a value of 89-00 shortly before the option's expiration date. If Kenji decides to exercise the option, hisprofit will be $The profit that Lucia will make will be $

If Kenji expects interest rates to increase and purchases a put option on Treasury bond futures with…

Answered: 7. Futures options Suppose Kenji…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

See similar textbooks

Similar questions

Assume interest rate is zero. In a shout call option the strike price is $30. The holder shouts when the asset price is $40. What is the payoﬀ from the option if the ﬁnal asset price is $35? A. $0 B. $5 C. $10 D. $15
Question Suppose that the zero-coupon bond prices for one-year, two-year, three-year of maturities are given by 0.97 , 0.92 ,0.88 , respectively. Assume that the bond price has volatility 0.1. Calculate the price of a one-year, European call option on a zero-coupon bond that matures at time 3 (year) with strike price 0.99.
23. Assume that a speculator purchases a put option on British pounds (with a strike price of $1.50) for $.05 per unit. A pound option represents 31,250 units. Assume that at the time of the purchase, the spot rate of the pound is $1.51 and continually rises to $1.62 by the expiration date. The highest net profit possible for the speculator based on the information above is: A) $1,562.50. B) -$1,562.50. C) -$1,250.00. D) -$625.00.
Clarke plans to satisfy cash needs in nine months by selling its Treasury bond holdings for $4 million. However, Clarke is concerned that interest rates might increase over the next three months. To hedge against this possibility, Clarke plans to sell Treasury bond futures. Thus, Clarke sells futures contract for a price of 99-12. Assuming that the actual price of the futures contract declined to 97-20, Clarke would make a of $___. from closing out the futures position. a. b. C. d. e. -——— 40; profit; $76,800 40; loss; $76,800 50; profit; $70,000 40; profit; $70,000 none of the above
Please answer it with no descriptions or details, with the question numbers and answers, the exact way it should go on according to the red regulations, thank you!
An American-type option based on bond expires after 90 days. During thisperiod, there is no coupon payment. The current price of this bond is 115 TL for each 100 TL nominal value. The nominal value of the contract is 1 TL and the risk-free interest rate is 11%. If the strike price is 120, calculate the lowest and highest prices of the put option.
You use a forward binominal tree to price options on a futures contract. You are given: i) The period is 1 year ii) The volatility of the futures price is 30% iii) The initial futures price is 100 iv) The continuously compounded risk-free rate is 3% Calculate the price of a one-year 110-strike European call option on the futures contract. A. 8.68 B 9.13 C 10.32 D 11.54 E 12.06
June 2021 Mexican peso futures contract has a price of $0.05197 per MXN. You believe the spot price in June will be $0.05831 per MXN. MXN500,000 is the contract size of one MXN contract. Required: What speculative position would you enter into to attempt to profit from your beliefs? Calculate your anticipated profits, assuming you take a position in three contracts. What is the size of your profit (loss) if the futures price is indeed an unbiased predictor of the future spot price and this price materializes?
A6)
7. Evaluate the following substitution swap: You currently hold a 25-year, 9.0 percent coupon bond priced to yield 10.5 percent. As a swap candidate, you are considering a 25-year, Aa-rated, 9.0 per- cent coupon bond priced to yield 10.75 percent. (Assume a one-year work-out period and reinvest- ment at 10.5 percent.) Dollar investment Coupon i on one coupon Principal value at year end Total accrued Realized compound yield Value of swap: Current Bond Candidate Bond basis points in one year
6(b) Suppose that a futures price is currently £30. The risk-free interest rate is 5% per annumcontinuously compounded. A three-month American call futures option with a strike priceof £28 is worth £4. Calculate bounds for the price of a three-month American put futuresoption with a strike price of £28.
Today is January 1. The forward price for contracts maturing on April 1 is $104.4 and on October 1 is $111.6. On April 1, the price of a zero-coupon bond maturing on October 1 is $0.975. Assuming that the underlying interest rate is a continuously compounded interest rate and will not change, the amount of profit that you can make on October 1 by trading one contract each of the near and distant maturity forwards and other securities is: [round to two decimal places]

SEE MORE QUESTIONS

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS