Problem 11.4Required:A "three-against-nine" FRA has an agreement rate of 4.75 percent. You believe six-month CME Term SOFR in three months will be5.125 percent. You decide to take a speculative position in an FRA with a $1,000,000 notional value. There are 183 days in the FRAperiod. Determine whether you should buy or sell the FRA and what your expected profit will be if your forecast is correct about thesix-month CME Term SOFR rate.Note: Round your intermediate calculations to 6 decimal places. Round your answer to 2 decimal places. Assume 360 days in ayear.for an expected profit of

Notional Value of FRA = $1,000,000Forecasted Rate of FRA = 5.125%Agreement Rate of FRA = 4.75%FRA…

Required: A "three-against-nine" FRA has an agreement rate of 4.75 percent. You believe six-month CME Term SOFR in three months will b 5.125 percent. You decide to take a speculative position in an FRA with a $1,000,000 notional value. There are 183 days in the F period. Determine whether you should buy or sell the FRA and what your expected profit will be if your forecast is correct about six-month CME Term SOFR rate. Note: Round your intermediate calculations to 6 decimal places. Round your answer to 2 decimal places. Assume 360 days year. for an expected profit of

Required: A "three-against-nine" FRA has an agreement rate of 4.75 percent. You believe six-month CME Term SOFR in three months will b 5.125 percent. You decide to take a speculative position in an FRA with a $1,000,000 notional value. There are 183 days in the F period. Determine whether you should buy or sell the FRA and what your expected profit will be if your forecast is correct about six-month CME Term SOFR rate. Note: Round your intermediate calculations to 6 decimal places. Round your answer to 2 decimal places. Assume 360 days year. for an expected profit of

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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Question 3Firm A plans to acquire Firm B. The acquisition would result in incremental cash flowsfor Firm A of £10 million in each of the first five years. Firm A expects to divest Firm Bat the end of the fifth year for £100 million. The β for Firm A is 1.1, which is expectedto remain unchanged after the acquisition. The risk-free rate, Rf, is 7 per cent, andthe expected market rate of return, Rm, is 15 per cent. Firm A is financed by 80 percent equity and 20 per cent debt, and this leverage will also remain unchanged afterthe acquisition. Firm A pays interest of 10 per cent on its debt, which will alsoremain unchanged after the acquisition.Required:a) Disregarding taxes, what is the maximum price that Firm A should pay for Firm B?b) Firm A has a share price of £30 per share and 10 million shares outstanding. IfFirm B’s shareholders are to be paid the maximum price determined in part (a) viaa new share issue:i. how many new shares will be issued ii. what will be the post-merger share…
A “three-against-nine” FRA has an agreement rate of 4.76 percent. You believe six-month LIBOR in three months will be 5.14 percent. You decide to take a speculative position in a FRA with a $7,000,000 notional value. There are 182 days in the FRA period. Determine what your expected profit will be if your forecast is correct about the six-month LIBOR rate. (USD with cents)
None
You buy 6 call options with a contract size of AUD 30,000. They have a USD/AUD strike price of 0.57 and a premium of 7.86 (USD/AUD). You hold these options for 1 month and then sell them for 6.8 (USD/AUD). The brokerage fee on each contract is payable on both entry and exit and is USD 12.21. What is the net profit on this transaction in USD? O a. -190,946.52 Ob. -31,824.42 Oc. -190,800.00 O d. -190,873.26 Oe. -55,800.00 You buy 6 call options with a contract size of AUD 30,000. They have a USD/AUD strike price of 0.57 and a premium of 7.86 (USD/AUD). You hold these options for 1 month and then sell them for 6.8 (USD/AUD). The brokerage fee on each contract is payable on both entry and exit and is USD 12.21. What is the net profit on this transaction in USD? O a -190,946.52 Ob 31,824.42 O-190,800.00 Od 190,873.26 -55.800.00
Assuming the leasehold yield is 2% above the freehold yield, calculate the Years Purchase (YP) dual rate for 10 years if the accumulative rate is 3% and that a comparable freehold property let at full market rent of $40,000 has just been sold for $500,000. Hint: Analyse the market yield from the comparable first and then use it to calculate the required YP. 4.3872 7.3625 6.1250 5.3410
Please calculate the price of a put option that matures in 2 months with a strike price of $58. Assume the risk free rate is 3%/month. 50 Month 1 A. 7.29 B.1.07 OC.11.3 OD.O 62.5 45 Month 2 78.125 56.25 40.5
Suppose the initial margin on heating oil futures is $20, 200, the maintenance margin is S 16, 500 per contract, and you establish a long position of 12 contracts today, where each contract represents 27,000 gallons. Tomorrow, the contract settles down 5.07 from the previous day's price. What is the maximum price decline on the contract that you can sustain without getting a margin call?
To find the quoted price of a 180-day T - bill with a 5% yield and the contract price for a $ 1,000,000 90 - day notional Eurodollar contract, we need to do a couple of calculations.
Assume that Promina Group expects to need NZ$943,000 in 6 months. The existing spot rate of the New Zealand dollar is $0.70. The 6-month forward rate of the New Zealand dollar is $0.72. Promina Group created a probability distribution for the future spot rate in 6 months as follows: FUTURE SPOT RATE PROBABILITY 28% 46% 26% $0.68 $0.73 $0.78 Assume that 6-month put options on New Zealand dollars are available with an exercise price of $0.73 and a premium of $0.04 per unit. 6-month call options on New Zealand dollars are available with an exercise price of $0.70 and a premium of $0.03 per unit. Assume the following money market rates per annum: US Deposit rate 7% Borrowing rate 8% Determine whether a forward hedge, a money market hedge, or a currency options hedge would be the most appropriate. NEW ZEALAND 2% 3% a. b. Compare the most appropriate hedge to an unhedged strategy and decide whether Promina Group should hedge its position.

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