Scenario is that you are suppose to borrow an amount of $9,000,000 for 91 days at LIBOR beginning next September. In this case, we might want to hedge against a potential (Increase or Decrease) in interest rates between now and September by taking necessary position in Euro dollars. Substantiate your answer with what position needs to be taken with explanations?

Scenario is that you are suppose to borrow an amount of $9,000,000 for 91 days at LIBOR beginning next September. In this case, we might want to hedge against a potential (Increase or Decrease) in interest rates between now and September by taking necessary position in Euro dollars. Substantiate your answer with what position needs to be taken with explanations?

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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3. You are to receive €400,000 in 90 days. a) Demonstrate how you would set up an options hedge. b) If the spot rate in 90 days is $1.10/€1.00. You receive the €400,000 and you exchange the euros into dollars. What is the net amount of dollars you receive and what is the dollar/euro exchange rate for the €400,000?
You use today's spot rate of the Brazilian real to forecast the spot rate of the real for one month ahead. Today's spot rate is $0.4577. Assume that you obtain the end-of-month spot exchange rates of the Brazilian real during the end of each of the last 6 months. End of Month 1 2 3 4 5 6 % $ Value of Brazilian real Use the value-at-risk method to determine the maximum percentage loss of the Brazilian real over the next month based on a 95 percent confidence level. Do not round intermediate calculations. Round your answer to two decimal places. $0.4244 0.4290 0.4283 0.4617 0.4725 0.4577 Forecast the exchange rate that would exist under these conditions. Do not round intermediate calculations. Round your answer to four decimal places.
Which of the following statement is most correct? When solving a problem involving an annuity dueyou must select the END model on your financial calculator When using a financial calculatorcash outflows generally have to be entered as negative numbers because a financial calculator sees money leaving your hands The present value of a single future sum of money is POSITIVELY related to both the number of years until payment is received and the discount rate In the loan amortization tablethe payment is constant, the interest payment is increasing and the principals are declining.
ou can assume that all payments are made at the beginning of the period and use "1" for the "type" argument in the formula. A. Suppose you invest $ 11,400 today. What is the future value of the investment in 29 years, if interest at 7% is compounded annually? B B. Suppose you invest $ 11,400 today. What is the future value of the investment in 29 years, if interest at 7% is compounded quarterly? 4 5 6 27 28 29 C. Suppose you invest St $ 570 monthly. What is the future value of the investment in 29 years, if interest at 5% is compounded monthly? Question 1 Question 2 + Ready Accessibility: Investigate MAR 17 A W +
12. If a financial contract promises you to pay $110 next year and $121 the year after that, and if you lend $200 today, what is its yield to maturity in this contract? Write down the appropriate formula, calculation procedure, and the answer.
You are trying to value the following investment opportunity: The investment will cost you $22,619 today. In exchange for your investment you will receive monthly cash payments of $4,979 for 8 months. The first payment will occur at the end of the first month. The applicable effective annual interest rate for this investment opportunity is 8%. Calculate the NPV of this investment opportunity. Round to two decimals (do not include the $-sign in your answer).
A bank is offering a special deal. If you invest X now, the bank will give you 15,000 at time 7; 14,000 at time 8; 13,000 at time 9; and so on with the last payment being at time 14. Using an annual effective interest rate of 8%, determine X.
In September 2020, swap dealers were quoting a rate for five-year euro interest-rate swaps of 4.5% against Euribor (the short-term) interest rate for euro loans). Euribor at the time was 4.1%. Suppose that A arranges with a dealer to swap a €10 million five-year fixed- rate loan for an equivalent floating-rate loan in euros, answer the following: (Leave no cells blank - be certain to enter "0" wherever required.) a. Assume the swap is fairly priced. What is the value of this swap at the time that it is entered into? Swap value b. Suppose that immediately after A has entered into the swap, the long-term interest rate rises by 1%. Who gains and who loses? Dealer gains; A loses O A gains; Dealer loses c. What is now the value of the swap to A for each €1,000 of par value? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 2 decimal places.) Swap value
Suppose that you want to take out a loan and that your local bank wants to charge you an annual real interest rate equal to 3%. Assuming that the annualized expected rate of inflation over the life of the loan is 1%, determine the nominal interest rate that the bank will charge you. What was the actual real interest rate on the loan if, over the life of the loan, actual inflation is 0.5%?
You are thinking about entering into a 3 year plain vanilla swap with annual payments and a notional principal of $5,000,000. If you plan to pay the fixed rate on the swap what would you expect to pay if annual interest rates are listed below per annum with continuous compounding? Year Rate 1 3.00% 2 3.50% 3 4.50% A) $53,221.46 B) $150,000.00 C) $183,333.33 D) $227,411.44 E) $372,407.89 The answer is D. Show all work to reach D, no Excel.
28. Consider a bank dealer who faces the following spot rates and interest rates. What should he set his 1- year forward ask price at? Bid So(S/E) S1.42 = €1.00 F360(S/E) A. $1.4324/€ B. $1.4358/€ C. $1.4662/€ D. $1.4676/€ Ask $1.45 = €1.00 Borrowing 4.25% APR is je 3.10% APR Lending 4% APR 3% APR
A lender will be having £10 million to lend from December to March next year. Right now, the December Eurodollar futures contract has price 94. If the lender uses 10 December Eurodollar futures to hedge his future lending, does he long or short futures? If the 3-month LIBOR in December turns out to be 1.2% (3-month effective), how much money does the lender get in March from his hedged lending of £10 million?

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