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

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Suppose a oil producer wants to hedge against possible price fluctuations in the market. For example, in November, he decides to enter into a short-sell position in a 2 (two) futures contracts in order to limit his exposure to a possible decline in the cash price prior to the time when he will sell his oil in the cash market. Assume that the spot price of oil is $30 and the futures price for a March futures contract is $45. What is the basis? Выберите один ответ: a. 30 b. 7.5 c. 25 d. 15 e. 45
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
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 enter into a 1-year futures contract on a non-dividend paying stock when the stock price is $100 and the risk-free interest rate is 5% per annum. Six months later the stock price has fallen to $90, and the interest rate is 4% per annum. Which of the answers below is closest to the change in the futures price? Assume discrete compounding and discounting. Question 6Answer a. -12.34 b. -11.40 c. -10.00 d. -13.20
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
6.Assume we have the following information: Spot price : 1146.00 Actual futures price : 1192.50 Theoretical futures price : 1160.00 Maturity : 3 months a. Is the futures fairly priced? Suppose an arbitrageur wish to take advantage of this opportunity. He has RM10,000,000.00 which he can fund at the current risk-free rate of 5%. b. What should he do? c. How many contracts should be shorted or bought? d. Assume that the arbitrageur maintains this position until contract expiry at which time futures and cash prices have converged to 1165. How much profit would he makes?
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.
This morning (Day 0) you take a short position in a pound futures contract that matures in 3 days (Day 3). The future price is $1.9750 today. The contract size is £62,500 and its initial performance bond and maintenance bond are $2,430 and $1,830, respectively. a. (b) Assuming that the daily settlement prices are indicated below, how would the daily change in settlement future prices affect your account? Show the daily gain/loss and account balance. Day 0 1 2 3 Settlement 1.9750 1.9700 1.9815 1.9907 Total Gain/Loss Account Balance b. During this period, did you receive a margin call? If you did, on what day? c. At the end of Day 3, how much in total did you make/lose on this futures contract?
June 2021 Mexican peso futures contract has a price of $0.05194 per MXN. You believe the spot price in June will be $0.04525 per MXN. Required: a. What speculative position would you enter into to attempt to profit from your beliefs? b. Calculate your anticipated profits, assuming you take a position in three contracts. c. 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? Complete this question by entering your answers in the tabs below. Required A Required B Required C Calculate your anticipated profits, assuming you take a position in three contracts. Note: Do not round intermediate calculations. Round your answer to the nearest whole number. Anticipated profit
An investor enters a three-year swap contracts bypaying fixed price and receive spot price of Applesstock at the end of each year. The spot price ofApple's stock is Ș515 now, and the risk-free rate is3%.a. Draw the synthetic forwards contracts tomimicking this swap contract.o. Compute the rational fixed price based onarbitrage-free principal
You purchase a $100,000 bond futures contract at 96.5. a) Assume that the bond futures price falls to 94. What is your gain/loss? b) Assume that the bond futures price rises to 98. What is your gain/loss?

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