The continuously compounded interest rate on 5-year default-free Australian dollar-denominated bonds is 0.5% per annum. The continuously compounded interest rate on 5-year default-free Euro- denominated bonds is 0.2% per annum. There are no transactions costs. The current exchange rate is $1.50 Australian for 1 Euro. There will be arbitrage opportunities unless a 5-year European-style put option on 50,000 Euro with an exercise price of $90,000 is worth at least O $13,528.88 O $12,777.89 O $57,413.10 O $16,524.60

The continuously compounded interest rate on 5-year default-free Australian dollar-denominated bonds is 0.5% per annum. The continuously compounded interest rate on 5-year default-free Euro- denominated bonds is 0.2% per annum. There are no transactions costs. The current exchange rate is $1.50 Australian for 1 Euro. There will be arbitrage opportunities unless a 5-year European-style put option on 50,000 Euro with an exercise price of $90,000 is worth at least O $13,528.88 O $12,777.89 O $57,413.10 O $16,524.60

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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DVR Inc. can borrow dollars for five years at a coupon rate of 2.84 percent. Alternatively, it can borrow yen for five years at a rate of .94 percent. The five-year yen swap rates are 0.73–0.70 percent and the dollar swap rates are 2.50–2.53 percent. The currency ¥/$ exchange rate is 87.620. Determine the dollar AIC and the dollar cash flow that DVR Inc. would have to pay under a currency swap where it borrows ¥1,750,000,000 and swaps the debt service into dollars. Borrow: Swap:Provide accurate solution with explanation of all the requirements. Use excel calculations with excel formulas. Provide solution ASAP.
Assume that the Risk Free Rate in Europe is 3% and in the US is 1%. if the current exchange rate of Euro to Dollar is 1.14 ( 1 Euro for 1.14 USD) What is going to be a fair futures price to deliver 1 Euro in 1 year? (mark the closest rounded answer please) 1.12 1.16 1.14 NONE OF THE ABOVE
Assume the spot rate on the New Zealand dollar is NZ$1.0926, the risk-free nominal rate in the U.S. is 3.8 percent and 4.1 percent in New Zealand. What is the four-year forward rates best establishes the approximate interest rate parity condition?
Assume spot rate for Euro is $1.1900 and the three-month forward rate is $1.1710. What is the minimum price that a six-month American put option with a striking price of $1.220 should sell for in a rational market? Assume the annualized six-month Euro rate is 0.5 percent. O $0.0489 O $0 O $0.0300 $0.0389
A) It is now January. The current interest rate is 5% per annum annual compounding. The June future price for gold is $1846.30, while the December future rice is $1860.00. Find a strategy to explore the arbitrage opportunity. B) Suppose that the spot price of the euro is currently $1.5 USD. The one-year futures price is $1.55 USD. Is the interest rate higher in the United States or the euro zone? Justify your answer. C) OneAsx has just introduced a single-stock futures contract on Arandex stock, a company that currently pays no dividends. Each contract calls for delivery of 1,000 shares of stock in one year. The T-bill rate is 6% per year annually compounded and Arandex stock currently sells at $120 per share. If the Arandex price drops by 3%, what will be the change in the future price and the change in the investors’ margin account who has a long position in one contract?
The current exchange rate is 0.8000 Swiss francs per dollar. A5-year U.S. government bond has a 3% yield, and a 5-year Swissgovernment bond has a yield of 2%. What is the expected 5-yearforward rate? (0.7619 Swiss francs per dollar) (Hint: Rememberthat the interest rate parity equation is for direct quotes.)
You can borrow CAD (Canadian dollar) at 8 percent, which is 2 percent above the swap rate, or at CAD Libor + 1 percent. If you want to borrow at a fixed-rate, what is the best way: direct, or synthetic (that is, using a floating-rate loan and a swap)? Direct borrowing would be to borrow at a fixed rate of 8 percent. Synthetic fixed-rate cad borrowing would be to borrow CAD at a floating rate of Libor + 1 percent and arrange a swap where you pay fixed 6 percent CAD in exchange for receiving CAD Libor.
Need Explanation and no plagrisum please. ( please answer asap )
Y2
Suppose you have a 2.5-year remaining on an interest rate swap with a notionalprincipal of $10, 000, 000 between Company A and Company B. Company A pays fixed rateand Company B pays the float rate. Fixed and float payments are exchanged every year andthe last payment was exchanged 6 months ago. The fixed rate is 3.5% per annum, and thefloating rate is tied to the annual LIBOR. The previous 1-year LIBOR rate, set 6 months ago,is 2.75%, 6 month LIBOR is 3.25%. the 1.5-year LIBOR is 3.25%, and the 2.5-year LIBOR is3.50%.Calculate the present value of the fixed and floating legs of the swap, and determine the swap’snet present value from Company A’s perspective. Assume annual compounding for discounting.
Suppose the spot price of the British pound is currently $1.50. If the risk-free interest rate on one-year government bonds is 4% in the United States and 3% in the United Kingdom, what must the forward price of the pound be for delivery one year from now? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
A trader in the United States has a portfolio of derivatives on the Australian dollar with a delta of 456. The USD and AUD risk free interest rates are 5% and 8%. What position in a one-year forward contract on the Australian dollar creates a delta-neutral position? Question options: Long 494.0 Short 494.0 Short 394.0 None of the above

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