Question 8a) The current price of a barrel of oil is $25. The annualstorage cost, paid upfront, is $0.24 per barrel. Thecontinuously compounded interest rate is 5% perannum for all maturities. What is the 9 - month futuresprice of oil?b) The stock index level is 1200. The 3-month risk-free interest rate is 3% per annum, and the dividendyield for the following 3 months is 1.2% per annum. Forthe next 6 months, the risk-free interest rate is 3.5% perannum, and the dividend yield for the following 6months is 1% per annum. What are the futures prices forthe index with maturities of 3 months and 6 months,respectively? (Assume all interest rates and dividendyields are continuously compounded.)

My Explanation: A. EXPLANATIONTo calculate the 9-month futures price of oil, we use the formula for…

Answered: Question 8 a) The current price of a…

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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15
The S&R index spot price is 1100 and the continuously compounded interest rate is 5%. You observed a 9-month forward price of 1129.257. (a) What is the implied dividend yield? (b) Suppose you believe the dividend yield will be 3% over the next 9 months. How can you arbitrage?
4
Determinant of Interest Rates The real risk-free rate of interest is 4%. Inflation is expected to be 1% this year and 5% during each of the next 2 years. Assume that the maturity risk premium is zero. What is the yield on 2-year Treasury securities? Round your answer to two decimal places. % What is the yield on 3-year Treasury securities? Round your answer to two decimal places.
Suppose the stock price is currently $75. For the next six months there is 7.5% probability that the stock will appreciate 8% with 4% annualized drift. The risk-free rate is 1.53% per year with continuous compounding. The dividend yield is 1 p.a.%. Value the following option using binomial tress and 12-time steps. a.) What is the value of a six-month European put option with a strike price of $86. b.) What is the value of a six-month American put option with a strike price of $70. c.) What is the value of a six-month European call option with a strike price of $86. d.) What is the value of a six-month European put option with a strike price of $70. e.) Estimate how high the minimum strike price must be for it to be optimal to exercise the put option immediately.
Refer to the following table. Maturity (years) Zero-coupon YTM=r Suppose you wanted to lock in an interest rate for an investment that begins in one year and matures in five years. What rate would you obtain if there were no arbitrage opportunities? 1 3.96% The rate for an investment that begins in one year and matures in five years would be. (Round the final answer two decimal places. Round all intermediate values to four decimal places as needed.) K 2 5.73% 3 5.73% 4 5.21% 5 4.68%
Assume the current Treasury yield curve shows that the spot rates for six months, one year, and one and a half years are 1.0%, 1.1%, and 1.3%, all quoted as semiannually compounded APRs. What is the price of a $1,000 par, 4.75% coupon bond maturing in one and a half years (the next coupon is exactly six months from now)? The price of this bond is $ (Round to the nearest cent.)
2a. Last year a firm issued 20-year, 8% annual coupon bonds at a par value of $1,000. Suppose that one year later the going market interest rate drops to 6%. What is the new price of the bonds assuming that they now have 19 years to maturity? 2b. Suppose that one year after issue, the going market interest rate is 10% (rather than 6%). What would the price have been?
am. 66.
Assume the current Treasury yield curve shows that the spot rates for six months, one year, and one and a half years are 1.0%, 1.1%, and 1.3%, all quoted as semiannually compounded APRs. What is the price of a $1,000 par, 4.25% coupon bond maturing in one and a half years (the next coupon is exactly six months from now)? The price of this bond is $ (Round to the nearest cent.)
3
ok Based on economists' forecasts and analysis, 1-year Treasury bill rates and liquidity premiums for the next four years are expected to be as follows: R1 = 1.00% = 2.15% 2.25% = 2.55% E(21) E(31) = E(471) 42 = L3 = L4 = Using the liquidity premium theory, determine the current (long-term) rates. 0.05% 0.10% 0.12% nel plecor (in 01234 should be entered

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