Consider three securities that pay risk free cash flows over the next three years and that have the current market prices shown hereSecurity Price Today (5)Cash Flow inTwo Years (5)Cash Flow inThree Years ($)Name818283$9268$84.79$386 09Cash Flow inOne Year ($)100000100000500Calculate the no-arbitrage price, or the price that eliminates any arbitrage opportuntes, of a new secunty 84, that plays risk toe cash flows of $100 in one year and $500 in two yearsThe current no-arbitrage price of Security B4 is:s(round your answer to two decimal places)K

The cash flows of Security B4 can be replicated by buying 5 units of Security B1 and 2 units of…

Consider three securities that pay msk bee cash flows over the next three years and that have the cument market prices shown here Security Price Today (5) Cash Flow in Two Years (1) Cash Flow in Three Years (5) Name 81 812 83 $92 68 584.79 $306 09 Cash Flow in One Year (5) 100 O 0 0 100 0 · 0 500 Calculate the no arbitrage price, or the price that eliminates any arbitrage opportunities of a new secunty B4, that plays k The current no-arbitrage price of Security 04 is (round your answer to two decimal places) y in one year and $500 in two years

Consider three securities that pay msk bee cash flows over the next three years and that have the cument market prices shown here Security Price Today (5) Cash Flow in Two Years (1) Cash Flow in Three Years (5) Name 81 812 83 $92 68 584.79 $306 09 Cash Flow in One Year (5) 100 O 0 0 100 0 · 0 500 Calculate the no arbitrage price, or the price that eliminates any arbitrage opportunities of a new secunty B4, that plays k The current no-arbitrage price of Security 04 is (round your answer to two decimal places) y in one year and $500 in two years

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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Consider a forward contract which allows you to buy/sell a non-dividend paying stock in three months. Assume the current stock price is $99.41 and the three-month risk free interest is 5.4 percent per year. What should be the forward price? Keep your answer to two decimal places.
Suppose the quoted futures price for delivery in 1 year is $7.10. The current underlying price is $7 and the continuously compounded interest rate is 5%. The underlying does not pay dividends. How could you make a riskless arbitrage profit? Question 2Answer a. buy futures contracts, short sell the stock and invest in a bank account b. borrow from the bank to buy futures contracts and short sell the stock c. sell futures contracts, borrow and buy the stock d. sell future contacts, short sell the stock and invest in a bank account
Check My Work eBook What is the present value of a security that will pay $37,000 in 20 years if securities of equal risk pay 11% annually? Do not round intermediate calculations. Round your answer to the nearest cent. 2$
Ignore Sammy. Another derivatives trader, John, took a long position in IRU9 on 04/07/2019 and held it until maturity. When the IRU9 matured in mid-September 2019, John closed his derivative long position and bought the 90-day Bank Bill at the 1% spot rate. What net rate of interest did he earn on his investment? 0.80% 1.00% 2.08% 1.08%
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
Use the following information to answer. Coupon Payments are annual unless otherwise indicated! Years Face Coupon Market Security Rating Maturity Value Rate Price Treasury 1 $ 1,000 0.00% $ 965.00 Treasury 3 $ 1,000 1.90% $ 939.06 Treasury 5 $ 1,000 4.30% $ 932.42 Treasury 10 $ 1,000 6.80% $ 1,007.12 Treasury 15 $ 1,000 6.60% $ 908.25 Corp A A 5 $ 1,000 8.10% $ 990.00 Corp B BB 10 $ 1,000 7.90% $ 859.88 Corp C AA 15 $ 1,000 7.00% $ 660.00 What is the default risk premium for a BB debt security (round to two places)
None
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
Fixed Income Securities4. Today is t = 0. You have just bought a five-year zero-coupon Treasurybond with $100 face value. You paid $80.(a) What is the annually compounded yield to maturity on the bond?(b) Suppose that yields at all maturities decrease to 2% immediately after you havepurchased the bond. Calculate the annualized holding period return if you sellthe bond one year after you have purchased it, at t = 1.(c) What is the annually compounded yield to maturity on the bond at t = 1?
Suppose that ABC bank decides to purchase a T-note and convert it into a STRIP. The T-note has a maturity of 6 years, pays a 6% coupon rate (semiannual) and a face value of $10,000. How many separate securities can be created? O 6 O 12 O 13
A European call that will expire in one year is currently trading for $3. Assume the risk-free rate (based on continuous compounding) is 5%, the underlying stock price is $60 and the strike price is $55. a. Is there an arbitrage opportunity? b. Describe exactly what a trader should do to take advantage of the arbitrage opportunity assuming it exists. c. Determine the present value of the profit that the trader can earn assuming you identify an arbitrage opportunity. Use at least four decimal places for those questions that require a numerical answer.
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