Which of the following statements is true? Assume the convenience yield for copper is 1%. If the sum of financing cost and storage cost for copper over the next 6 months equals 5%, the spot price of copper is 6% lower than the 6-month no-arbitrage forward price of copper O The 3-month no-arbitrage forward price of a consumption asset is solely determined by the spot price, interest rates over 3-months, and the income paid on the spot asset Assume the convenience yield for copper is 1%. If the sum of financing cost and storage cost for copper over the next 6 months equals 5%, the 6-month no-arbitrage forward price of copper is 6% lower than the copper spot price None of the other statement is true Gold and silver have always negative cost of carry

Which of the following statements is true? Assume the convenience yield for copper is 1%. If the sum of financing cost and storage cost for copper over the next 6 months equals 5%, the spot price of copper is 6% lower than the 6-month no-arbitrage forward price of copper O The 3-month no-arbitrage forward price of a consumption asset is solely determined by the spot price, interest rates over 3-months, and the income paid on the spot asset Assume the convenience yield for copper is 1%. If the sum of financing cost and storage cost for copper over the next 6 months equals 5%, the 6-month no-arbitrage forward price of copper is 6% lower than the copper spot price None of the other statement is true Gold and silver have always negative cost of carry

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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ABC mines copper with fixed costs of $0.50/lb and variable cost of $0.40/lb. The 1-year forward price of copper is $1/lb. The 1-year continuously compounded interest rate is 6%. If ABC does nothing to hedge copper price risk, what is its profit 1 year from now (per pound of copper)? If, on the other hand, ABC sells forward its expected copper production, what is its estimated 1-yearprofit from now? In both scenarios, assume the spot price of copper in 1 year can be $0.80, $0.90, $1.00, $1.10, and $1.20. 2) Compute ABC’s estimated profit in 1 year if it buys a put option with a strike of $1.00 and a premium of $0.04. Assume the spot price of copper in 1 year can be $0.80, $0.90, $1.00, $1.10, and $1.20.
Alpha feeds Co. is considering an expansion proposal to increase production. The proposal will require P18.1M for additional equipment and space requirements. The net receipts from this expansion are expected to be P4.5M per year for the next eight years, after which, the equipment will be sold for P0.78M. Using the IRR method, determine the acceptability of this proposal. The company’s MARR is 16%.Ans: i=18.8%
Suppose that the current price of oil is $ 90 per bbl. Suppose it costs $ 0.5 per bbl per month to store oil (payable monthly in advance). Suppose also that the term structure is flat with a continuously compounded rate of interest of 3 % for all maturities. Calculate the forward price of oil for delivery in 3 months.
A refinery has 250 tons of CPO on hand. This will be held over the following three months. He aims to hedge against a drop in CPO prices, which might result in losses since his production price is linked to CPO prices. The following information is available to him. Current inventory = 250 tons Spot price = $31100 per ton Interest rate = 6% per year Annual storage cost = $ 44 per ton (4% per annum) 3-month CPO futures = $ 1126.53 per ton a. How can the refiner protect oneself from declining CPO prices by using the CPO futures contract?? b. Demonstrate that the hedging approach will "lock-in" the value of his inventory in two potential CPO pricing situations in 90 days, as follows: i. Situation 1: Assume the CPO price drops by 20%. ($ 880 per ton) ii. Situation 2: Assume the CPO price increased by 20%. ($1,320 per ton
Modern Artifacts can produce keepsakes that will be sold for $280 each. Nondepreciation fixed costs are $5, 000 per year, and variable costs are $260 per unit. The initial investment of $13,000 will be depreciated straight-line over its useful life of five years to a final value of zero, and the discount rate is 10%. What is the accounting break-even level of sales if the firm pays no taxes? What is the NPV break-even level of sales if the firm pays no taxes? Note: Do not round intermediate calculations. Round your final answer to the nearest whole number. What is the accounting break-even level of sales if the firm's tax rate is 20%? What is the NPV break-even level of sales if the firm's tax rate is 20%? Note: Do not round intermediate calculations. Round your final answer to the nearest whole number. What is the degree of operating leverage for the firm for the NPV break-even points when the tax rate is 0% and when the tax rate is 20%? Note: Round intermediate calculation to the…
An investment group faces following GAP figures and rate sensitives. Time GAP Cumulative gap 0-3 months -140 -120 3-6 months +60 -94 6-12 months +1725 +1494 Interest rate rose by 200 basic points (2%) at the begining of first time bucket(0-3 months) and remained there for the next year. Estimate the effect on net interest revenue for the coming 1 year period. Repricing occurs at the start of each period.
The price of gold is currently $1700 per ounce. The forward price for delivery in one year is $1800. An arbitrageur can borrow money at 5% per annum. What should the arbitrageur do? Assume that the cost of storing gold is zero and that gold provides no income.
3
A barrel of oil has a current cost of $85barrel. If general infation is 2.7%year and oil has a real escalation rate of 6%year, what will a barrel of ol cost in actual dollars five years from now? Ol will cost in actual dolars five years from now $ barrel. (Round to the nearest cent)
An investment firm A pays 6.5% interest per annum, compounded on a quarterly basis. To remain competitive, the investment manager of another investment firm B Ltd is willing to match the interest rate offered by A, but interest will be compounded monthly. What nominal rate of interest must firm B offer to its clients?

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