The current price of the Exchange Traded Fund YHT, which does not pay dividends, is $12.5 per share. Your position, worth 8750 dollars, consists entirely of YHT shares. The effective 3-month interest rate is 0.25% and futures contracts on YHT with 3- month maturity are trading at fair value. To protect your position against potential losses, you decide to partially hedge by selling 595 YHT futures that expire in 3 months. You have built a proprietary model according to which the 3-month net return on YHT will be between -15% and 17%. What is the lowest possible value of your combined position in 3 months based on your model? $ 8571.72 $8228.85 $7885.98 $7714.55

The current price of the Exchange Traded Fund YHT, which does not pay dividends, is $12.5 per share. Your position, worth 8750 dollars, consists entirely of YHT shares. The effective 3-month interest rate is 0.25% and futures contracts on YHT with 3- month maturity are trading at fair value. To protect your position against potential losses, you decide to partially hedge by selling 595 YHT futures that expire in 3 months. You have built a proprietary model according to which the 3-month net return on YHT will be between -15% and 17%. What is the lowest possible value of your combined position in 3 months based on your model? $ 8571.72 $8228.85 $7885.98 $7714.55

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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An investor holds 100 three-year zero coupon bonds with a face value of £100 which each trade at a price of £92.5. The investor wants to use a one-year zero coupon bond, face value £100, which trades at £95 and a five-year zero-coupon bond with a face value of £200, which trades at £180, to immunize the portfolio. c) If the investors has shorted the one-year and the five year bonds where has she invested the money received? Why has she chosen these forms of assets?
Clarke plans to satisfy cash needs in nine months by selling its Treasury bond holdings for $4 million. However, Clarke is concerned that interest rates might increase over the next three months. To hedge against this possibility, Clarke plans to sell Treasury bond futures. Thus, Clarke sells futures contract for a price of 99-12. Assuming that the actual price of the futures contract declined to 97-20, Clarke would make a of $___. from closing out the futures position. a. b. C. d. e. -——— 40; profit; $76,800 40; loss; $76,800 50; profit; $70,000 40; profit; $70,000 none of the above
Consider a CDS on Lehman Brothers default event. Given today’s market conditions you know that the present value of expected premium payments 6.0250*s, the present value of expected accrual payments is 0.0515*s and the present value of expected payoff is 0.1325. All measured per $1 of notional principal. You also know that Argo hedge fund bought this CDS on Lehman Brothers default from AIG one week ago with contractual rate of X basis points per year. Given this information the breakeven spread (i.e. the value of s) is _________ and today’s value of the CDS contract to AIG is positive if the value of s is _______ than X. a. 222 basis points;greater b. 218 basis points; smaller c. 218 basis points, greater d. 222 basis points; smaller e. 84 basis points; greater Please help and explain
A share is currently priced at £50. After one time period the share price will either increase to £70 or decrease to £40. Assume the interest rate is 4% per time period. Find the no-arbitrage price of a European derivative on the share which has payoff £90 if the share price goes up and £110 if the share price goes down. State your answer to the nearest pence. Do not enter the pound sign.
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You have been hired to analyze a new 20-year Callable Convertible Bond. The bond pays a 6% coupon annually, and is selling at par. The conversion price is $150 and the stock is currently selling at $35. The bond is callable at $1,150, but analysts believe that the bond will not be called unless the conversion value reaches $1,250. The YTM of a 20-year non-callable, non-convertible bond is 8.5%. (a) What would be the price of the bond if it did not have the call and conversion features? (b) Would the bond sell at a premium or a discount if it was convertible but not callable? (c) Would the bond sell at a premium or a discount if it was callable but not convertible?
Consider three securities that pay risk free cash flows over the next three years and that have the current market prices shown here Security Price Today (5) Cash Flow in Two Years (5) Cash Flow in Three Years ($) Name 81 82 83 $9268 $84.79 $386 09 Cash Flow in One Year ($) 100 0 0 0 100 0 0 0 500 Calculate the no-arbitrage price, or the price that eliminates any arbitrage opportuntes, of a new secunty 84, that plays risk toe cash flows of $100 in one year and $500 in two years The current no-arbitrage price of Security B4 is: s(round your answer to two decimal places) K

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