**Forward Contract Pricing: Educational Exercise**In this exercise, we explore determining the forward price of a financial contract to buy a 10-year, zero-coupon bond that will be issued in one year. Key details include:- **Face Value of the Bond:** $1,000- **Spot Interest Rates:** - 1-year rate: 6% - 11-year rate: 8%**Questions:**a. **Calculate the Forward Price of Your Contract** - Remember to avoid rounding during intermediate steps. Present the final result rounded to two decimal places (e.g., 32.16).b. **Calculate the New Forward Price** - Suppose both the 1-year and 11-year spot rates unexpectedly decrease by 2 percent. Determine the new forward price of the contract. - Again, do not round intermediate calculations, but present the final result rounded to two decimal places (e.g., 32.16).**Inputs:**- a. Forward price: [ __ ]- b. New forward price: [ __ ]This tutorial is designed to enhance your understanding of forward contracts and the impact of interest rate changes.

Information Provided: Bond face value = $1000 1 year spot rate = 6% 11 year spot rate = 8%

a. What is the forward price of your contract? (Do not round intermediate calculation and round your answer to 2 decimal places, e.g., 32.16.) b. Suppose both the 1-year and 11-year spot rates unexpectedly shift downward by percent hat is the new price of the forward contract? (Do not round intermediat calculations and round your answer to 2 decimal places, e.g., 32.16.)

a. What is the forward price of your contract? (Do not round intermediate calculation and round your answer to 2 decimal places, e.g., 32.16.) b. Suppose both the 1-year and 11-year spot rates unexpectedly shift downward by percent hat is the new price of the forward contract? (Do not round intermediat calculations and round your answer to 2 decimal places, e.g., 32.16.)

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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8) Most futures contracts are closed by a. Delivery of the underlying asset. b. Placing an offsetting order. c. Exercise of the embodied option. d. Default. e. none of the above. 9) Which of the following is not a forward contract? a. a long-term employment contract at a fixed salary. b. an automobile lease non-cancellable for three years. c. a down payment to rent an apartment. d. a signed contract to buy a house in six months. e. none of the above. 10) In a futures marking-to-market, when the trader receives a margin call, the amount he must deposit is called: a. the initial margin. b. the maintenance margin. c. the variation margin. d. the margin balance. e. none of the above. 11) If the initial margin of a futures contract is $5,000 and the maintenance margin is $3,500, how much must you deposit at the start of the contract? a. $5,000 b. $3,500 c. $8,500 d. $0.000 e. none of the above. 12) If the initial margin is $5,000, the maintenance margin is $2,500 and your margin balance is…
Q9. How would you hedge the risk of a price rise using a derivative? Group of answer choices 1. You would take out a spot contract to sell the underlying. 2. You would take out a forward contract to sell the underlying. 3. You would take out a spot contract to buy the underlying. 4. You would take out a forward contract to buy the underlying.
Assuming the forward contract entered in at the price of $285 and the price of the underlying asset instead is $298.32 at expiration. The market value and the overall position of the forward contract from our perspective would be: a. $13.32 b. -$13.32 c. $28.47 d. -$28.47
True/false An option is a financial contract that gives the owner the right to buy or sell some asset at a fixed price on or before a given date. The put-call parity is derived based on the principal of no arbitrage. That is, the put-call parity equation holds only when the market is reasonably good enough so that arbitrage opportunities are not allowed. Today Jim bought a call option and Jill wrote a call option. The options are exactly the same (with the same underlying asset, same exercise price, same expiration date, same in every aspect). When the underlying stock price changes, for every dollar Jim gains, Jill loses a dollar, and vice versa. In reality, stock option contracts are based on the unit of 100 shares and expire on the third Friday of the month. An out of the money option means that if you exercise the option now you will be able to get money out of it.
True or False: When a forward contract is settled in cash, the short side of the contract must pay money when thefuture realized price at the expiration of the contract is low.
R3
For a call option of CN¥100,000 with the $0.16 exercise price and $0.0005 premium, When the spot exchange rate is $0.1602, the call option holder should __ the call? a. exercise b. not exercise
Hello Can you help with the explanation with this
A European call option can be exercised a. any time in the future b. only on the expiration date c. if the price of the underlying asset declines below the exerciase price d. immediately after dividends are paid e. none of these.
For two call options on the same underlying asset and same time to maturity, the relationship c(K1) – c(K2) ≤ K2 – K₁, for K1 < K2 must hold. Otherwise, there is an arbitrage opportunity. Given the following option prices: Strike Premium 645.00 63.20 650.00 99.00 655.00 57.50 89.85 660.00 Among the four calls, there is one pair for which the above relationship is not hold and thus, one can make arbitrage. To do so, one should buy option with strike price type your answer... , and sell option with strike price type your answer... The minimum profit is type your answer... and the maximum profit is type your answer...
Choose option a,b,c,d,e for the following: Question 7 - Imagine two currencies: X and Y. If it takes more units of X to buy Y 90 days forward: a. Then X will have depreciated over the 90 day period. b. Then Y would be devalued over the 90 day period. c. Then X would be devalued over the 90 day period. d. Then Y would have appreciated over the 90 day period. e. No option is correct.
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