Question 13Consider an 8-month forward contract on AT&T. The current price of AT&T is $60, and a dividend of $2 is expected at the endof 4 months. Assume that the risk-free rate of interest is 6 percent per year (continuously compounded). The actual forwardprice were $67 per share. You, an arbitrageur, will set up arbitrage strategy to earn arbitrage profits.Please fill out the following arbitrage trading tables to illustrate the arbitrage strategy and corresponding payoffs. By default,please round the number solution to 2 decimal places, except for requiring otherwise.Transaction (NOW)Payoff (Now t=0)Payoff (t=4 month)Payoff (t=8 month)(pleaseinput buy or sell) one forwardcontract on 1 share of stock(pleaseinput buy or short)share(s)(please input the number ofshares to trade) of AT&T stock(pleaseinput borrow or lend) loan for4 months(pleaseinput borrow or lend) loan for8 monthspayoff: $payoff: $payoff: $Net

Forward contract: A forward contract is a legal agreement to buy or sell an asset at a predetermined…

Answered: Consider an 8-month forward contract on…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Suppose a bank enters a repurchase agreement in which it agrees to buy Treasury securities from a correspondent bank at a price of $31,950,000, with the promise to buy them back at a price of $32,000,000. a. Calculate the yield on the repo if it has a 5-day maturity. b. Calculate the yield on the repo if it has a 15-day maturity. (For all requirements, use 360 days in a year. Do not round intermediate calculations. Round your percentage answers to 5 decimal places. (e.g., 32.16161)) a. b. X Answer is complete but not entirely correct. Yield on the repo Yield on the repo 1.02857 % 0.34286 %
Imagine that, during a job interview, you are handed the following quotes on U.S. Treasuries: Bond Maturity Coupon rate Yield to (years) maturity 1 1 5% 4.5% 2 2 5% 5.0% 3 3 0% 5.0% Assume that the par value is $100 and coupons are paid annually, with the first coupon payment coming in exactly one year from now. The yield to maturity is also quoted as an annual rate. What should be the 1-year forward rate between years 2 and 3? a. 6.482% ○ a. O b. 6.137% c. 6.507% O d. 6.736% NAVA
Jaison Ltd issues $8 million in 5-year debentures that pay interest every 6 months at a coupon rate of 10% per annum. The required market rate of return is 14% per annum. What is the issue price of the debentures (rounded to the nearest dollar)?
What is the present value of a security that will pay $17,000 in 20 years if securities of equal risk pay 8% annually? Do not round intermediate calculations. Round your answer to the nearest cent.
Suppose you can borrow and lend at the annual interest rate of 6% per annum. The IBM stock is trading at $200. It is not going to pay any dividend in one year. Use this information to answer the following three questions. 20. What is the fair forward price of a forward contract which calls for the delivery of 1 share of IBM stock at the end of one year? A. $216 B. $210 C. $214 D. $212 21. If the actual forward price Fa is $214, your arbitrage strategy is to A. buy one share of IBM, borrow $200, and sell the forward B. buy one share of IBM, borrow $212, and buy the forward C. short one share of IBM, lend $200, and buy the forward D. short one share of IBM, borrow $200, and sell the forward 22. At the end of one year, suppose IBM stock price is St, then the cash flow in the spot (stock) market is _, the cash flow in the forward contract is and the arbitrage profit is A. ST, 214- ST, 2 B. -St, ST-214, 2 C. -ST, 214-ST, 2 D. ST, ST-214, 2
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What is the present value of a security that will pay $10,000 in 20 years if securities of equal risk pay 5% annually? Do not round intermediate calculations. Round your answer to the nearest cent.
Suppose that you, on 1st of January 2024, enter a long position in a 10-year forward contract on a non-dividend-paying stock. The stock price is $50, and the risk-free rate of interest is 5% per annum with yearly compounding (as per 1st of January 2024). Five years later, 1st of January 2029, the price of the stock is $60, and the risk-free interest rate is still 5%. ` A). On 1st of January 2029 what is the value to the party holding the short position in the contract entered into on 1st of January 2024? Explain.
Standard Chartered Bank issues a certificate of deposit with a face value of USD 7 million, a term of 280 days and a coupon rate of 6.2%. You then sell this CS when it has only 122 days left until maturity, on a quote of 5.05/5.10%. At what amount will it be sold?
Suppose you have a 2.5-year remaining on an interest rate swap with a notionalprincipal of $10, 000, 000 between Company A and Company B. Company A pays fixed rateand Company B pays the float rate. Fixed and float payments are exchanged every year andthe last payment was exchanged 6 months ago. The fixed rate is 3.5% per annum, and thefloating 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 is3.50%.Calculate the present value of the fixed and floating legs of the swap, and determine the swap’snet present value from Company A’s perspective. Assume annual compounding for discounting.
Suppose that a bank has agreed to the following terms of an interest rate swap: - The notional principal is CAD 300 million and the remaining life of the swap is 11 months. - The bank pays 8% per annum, and receives three-month LIBOR. - Payments are exchanged every three months. - The swap (fixed) rate is 11% per annum for all maturities. - The three-month LIBOR rate a month ago was 12.5% per annum. All rates are compounded quarterly. Estimate the value of the swap using a) a bond-price valuation method, and b) a FRAS-based method?
Consider a two-period binomial model in which a non-dividend-paying stock currently trades at £35. Over each of the next two six-month periods, the share price is expected to go up by 12% or down by 9%. The risk-free interest rate is 6% per annum with continuous compounding. Calculate the value of a one-year European put option with a strike price of £36, using a two-period binomial tree method.

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