A 6 month, short forward contract was negotiated 3 monthsago when the spot price of the underlying asset was $400and the risk-free rate of interest was 4% per year. Thecurrent spot price of the underlying is $450 and the 3-month risk-free rate (with continuous compounding) is 3%per year. The current value of the short forward contract is:O-44.97O-43.97O-51.99O+48.00

Step 1: To calculate the current value of the short forward contract, we can use the formula for the…

Answered: A 6 month, short forward contract was…

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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Similar questions

The spot price of an investment asset is $35 and the risk-free rate for all maturities is 5% with continuous compounding. The asset provides an income of $2 at the end of the first year and at the end of the second year. Which of the below is closest to the three-year forward price? a. $35.84 b. $19.67 c. $40.50 d. $36.35
3
None
A one-year long forward contract on a non-dividend-paying stock is entered into when the stock price is $36.2 and the risk-free rate of interest is 4% per annum (cont. comp). What is the value of the forward contract 8 months later if the price of the stock is $38.5 and the risk-free rate interest rate is still 4%. (round to the nearest 0.01)
Three months ago you short a forward contract on soya bean that expires today has a forward delivery price of$400 per Metric Ton. The current forward price is$420 . The three-month risk-free interest rate (with continuous compounding) is8% p.a. What is the value of the short forward contract? A) +$27.92 B) −$27.92 C) +$20.00 D) −$35.68
Jon establishes a long position of one T-bond future today for a settlement price of 101'02. The exchange requires an initial margin of $2700 and a maintenance margin of $2500. Below are the next two days closing price on this contract. Day 1: settlement price100'31 Day 2: settlement price 99'30 The margin account balance after two days is Numeric Response dollars
A $30,000,000 interest rate swap has a 12-month maturity, and was entered 2 months ago. This means the swap has a remaining life of 10 months. The swap pays interest quarterly, and it stipulates that the fixed rate is 4.5%, while the floating rate is the 3-month LIBOR +1%. Two months ago, when the swap was entered, 3-month LIBOR was 2.9%. The 3-month LIBOR forward rates and continuous time zero-coupon prices are given in a table below. Use the zero coupon prices to discount cash-flows. 3-month LIBOR Forward Rates Term rate 1x4 2.90% 2x5 2.85% 3x6 2.84% 4x7 2.88% 5x8 2.90% 6x9 2.91% 7x10 2.92% 8x11 2.92% 9x12 2.92% Zero-Coupon prices T (month) Price 1 0.9976 2 0.9953 3 0.9929 4 0.9904 5 0.988 6 0.9856 7 0.9831 8 0.9807 9 0.9783 10 0.9761 11 0.9737 12 0.9712 (Important hint: since the swap was entered 2 months ago, and makes quarterly payments, in the remaining 10 months, payments should be expected in 1 month, 4 months, 7 months and 10 months. Discount cash flows accordingly.)…
5. Suppose you have a 2.5-year remaining on an interest rate swap with a notional principal of $10,000, 000 between Company A and Company B. Company A pays fixed rate and Company B pays the float rate. Fixed and float payments are exchanged every year and the last payment was exchanged 6 months ago. The fixed rate is 3.5% per annum, and the floating rate is tied to the annual LIBOR. The previous 1-year LIBOR rate, set 6 months ago, is 2.75%, 6 month LIBOR is 3.25%. the 1.5-year LIBOR is 3.25%, and the 2.5-year LIBOR is 3.50%. Calculate the present value of the fixed and floating legs of the swap, and determine the swap's net present value from Company A's perspective. Assume annual compounding for discounting.
A 2-year swap based on LIBOR is entered into on 30/6/2010 with current spot 3 month LIBOR at 0.54%. The swap is based on a notional principal of $100m What is the swap rate?
Assume that we entered into a one-year forward contract with price $300 today. Nine months later, the observed price of the stock is $350 and the interest rate is 8% per annum. The value of the existing forward contract expiring in three months will be closest to: A. 49.05. B. 55.72. C. –55.72. D. −49.05.

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