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Your company has just discovered a gold deposit. It will take 6 months to begin the mining operation and it will extract continuously for 5 years. Futures contracts on gold are available with delivery every 2 months. Discuss how the futures markets can be used for hedging.
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- The firm has contacted a bank to negotiate a loan to purchase the legal tech’ software. A loan of £10,000 will be needed and the bank has offered three options, each to begin on 1st February 2023: £10,000 loan at 6% simple interest. The entire loan is to be repaid in one lump sum after five years, with interest paid at the end of each year of the loan. £10,000 loan at 4% compound interest with amortised monthly repayments for five years £10,000 loan at 4.5% compound interest, with both interest and principal to be paid in one lump sum at the end of five years. Calculate the total of interest to be paid under each of the three options. Show your workings in full. QUESTION 6 The seller of the legal tech’ software states in its advertising material that a typical law firm can achieve an IRR over the seven-year life of the software licence of around 25%. You have done some research which shows that, after taking account of any interest payable on the loan, the law firm will…A trader bought two July futures contracts. Each contract is for the delivery of 1,000 barrels. The initial margin is $11,250 per contract and the maintenance margin is $9,000. Calculate the daily gain and loss and margin account balance from April 13, 2020 to April 15, 2020 and explain when the investor will receive a margin call and how much does he need to top up?You work at the interest rates swaps trading desk of an investment bank. Exactly three years ago you entered into an interest rate swap with a client with a notional of €200 million. The client is paying a fixed rate of 4% with semi-annual frequency and receiving the floating rate LIBOR with semi-annual frequency. The interest rate swap had a maturity of six years when it was initiated.Today is payment day and you have already exchanged the cash-flows for today. What is the value of this interest rate swap for you? Use the data in Table 1. Please show your calculations. Discuss your result. Rates are continuously compounded in image attachedb
- There are two options of investments given to an investor. Option A is a bond with face value of P100,000, 6% interest rate while the yield to maturity rate is 8%. Option B is a bond with a face value of P80,000, 14% (rounded up) interest rate while the effective rate of return is at 10%. Both investments is for 5 years and the interest income are being received annually. Which of the two investments should you choose? A. Option A B. Option B C. Either of the options D. answer not givenSuppose that you bought two one-year gold futures contracts when the one-year futures price of gold was US$1,340.30 per troy ounce. You then closed the position at the end of the sixth trading day. The initial margin requirement is US$5,940 per contract, and the maintenance margin requirement is US$5,400 per contract. One contract is for 100 troy ounces of gold. The daily prices on the intervening trading days are shown in the following table. Day Settlement Price 0 1340.30 1 1345.50 2 1339.20 3 1330.60 4 1327.70 5 1337.70 6 1340.60 Assume that you deposit the initial margin and do not withdraw the excess on any given day. Whenever a margin call occurs on Day t, you would make a deposit to bring the balance up to meet the initial margin requirement at the start of trading on Day t+1, i.e., the next day. b. Fill the appropriate numbers in the blank cells in the following table. (Hint: See solution to Q19 in Lesson 2 Learning…As a newly hired analyst, you are presented the following yields: 1-year 4.6%; 2-year 4.8%; 3-year 4.9%; 4-year 4.8% and 5-year 5.2%. What is the rate on a 1-year treasury Security, 4 years from now?
- = You were just notified that you will receive $100,000 in two months from the estate of a deceased relative You want to invest this money in safe, interest-bearing instruments, so you decide to purchase five-year Treasury notes. You believe, however, that interest rates are headed down, and you will have to pay a lot more in two months than you would today for five-year Treasury notes. You decide to look into futures, and find a quote of 108-28.7 for five-year Treasuries deliverable in two months (contracts trade in $100,000 units and require an initial margin is $680). What does the quote mean in terms of price, and how many contracts will you need to buy? How much money will you need to buy the contract, and how much will you need to settle the contract? XO 5-year Treasury notes are quoted at a par value of $100,000. Which of the following is the best answer? (Select the best answer below.) OA. Prices are quoted in increments of 1/32 of 1%, so the quote of 108-28.7 translates into…Real Estate investor borrowed Ksh 10million to invest in an asset at an interest rate of 10% p.a for 30 years. Calculate: I). Tha annual payment ii). The monthly payment iii). If the asset is expected to generate a return of Ksh 100000 per month. Advise the investor whether the investment in the asset is viable iv). Prepare a loan amortization schedule for the first ten years v). What other factors will you advise the investor to considerThe spot price of silver is $30 per ounce. The storage costs are $0.25 per ounce per year payable quarterly in advance. Assuming that interest rates are 7% per annum for all maturities, calculate the futures price of silver for delivery in 10 months.
- The current price of silver is $70.7 per ounce. The storage cost is 4.9% per annum with continuous compounding. Assuming that interest rates are 8.4% per annum with continuous compounding for all maturities, calculate the futures price of silver for delivery in 23 months GAssume that you expect the price of gold to increase over the next month. Does your expectation of an increase in the price of gold play any role in determining the futures price of gold? Explain your answer.
