9-month long futures contract on an investment asset that provides $25 coupon payment in 3 months. Storage cost is $2 per unit payable at 9 mos. Spot price of asset is $275 per unit. Risk-free rate is 6.5% per annum. B. Suppose futures price is $320, how will the trader exploit the arbitrage opportunity?

9-month long futures contract on an investment asset that provides $25 coupon payment in 3 months. Storage cost is $2 per unit payable at 9 mos. Spot price of asset is $275 per unit. Risk-free rate is 6.5% per annum. B. Suppose futures price is $320, how will the trader exploit the arbitrage opportunity?

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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Assume a futures price of Php5000 at the start of the transaction, with Php250 initial margin requirement and a Ph150 maintenance margin requirement. The trader takes in a short position of 10 contracts. Marking-to-market process occurs over the period of seven trading days. A. Complete the table above for the holder of the long position. B. When could there be a margin call? C. How much are the total gains or losses by the end of day 7?
On January 1, you sold one February maturity S&P 500 Index futures contract at a futures price of 2,412. If the futures price is 2,480 at contract maturity, what is your profit? The contract multiplier is $50. (Input the amount as positive value.)
If the spot price for silver is $18.56 per ounce, what should the futures contract price be for a three-month contract at an annual interest rate of 3.5%?
Suppose you borrow RM10,000,000 in the interbank money market at a KLIBOR yield of 6% p.a for aterm of 1 month. Should you buy or sell KLIBOR futures contract if you were to hedge against interest rate risks?
2.2. The price of a commodity is £45. Its volatility is 20% and the risk-free rate of interest is 3% per annum with continuous compounding (for all maturities). Use a three-step binomial tree to value (i) a nine-month European call option with strike £45 and (ii) a nine-month American put option with strike £48. Up and down movement can be calculated using volatility and expiration date (9 month call option).
Assume that a 5-month forward contract on a zero-coupon bond with marketface value of Php5,000 and is currently trading at Php4,777. Suppose thatthe annual risk-free interest rate is 6.28%, How much is the arbitrage profit?
Paragraph Styles a) If your firm has a payment of 100 million euros due one year from now, how would you hedge the FX risk in this payment with 125 000 euros futures contracts? I
9-month long futures contract on an investment asset that provides $25 coupon payment in 3 months. Storage cost is $2 per unit payable at 9 mos. Spot price of asset is $275 per unit. Risk-free rate is 6.5% per annum. C. Suppose futures price is $220, how will the trader exploit the arbitrage opportunity?
9-month long futures contract on an investment asset that provides $25 coupon payment in 3 months. Storage cost is $2 per unit payable at 9 mos. Spot price of asset is $275 per unit. Risk-free rate is 6.5% per annum. A. What is the no-arbitrage futures price?
Determine the cost of carry using a risk-free rate of 2%, calculate the no-arbitrage futures price for a 1-year contract at initiation for an asset with a spot price of $125 and a net cost of carry of $2.
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.
A non-dividend paying asset is current priced at $25 and the risk-free interest rate is 8% per annum. Today, you enter into a six-month futures contract to buy a unit of this asset. Three months from now the underlying price has fallen to $18 (but note that the interest rate has not moved). Which of the answers below is closest to the fall in the futures price? Use discrete discounting. Question 7Answer a. $6.50 b. $5.50 c. $7.50 d. $4.50

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