Study Guide For Brigham/houston's Fundamentals Of Financial Management, 14th
14th Edition
ISBN: 9781305403895
Author: Eugene F. Brigham, Joel F. Houston
Publisher: Cengage Learning
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Chapter 18, Problem 5P
Summary Introduction
To determine: The implied nominal interest rate and new value of the contract.
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Assume that today the euro futures contracts with a September 15th delivery date are priced at $1.3680/€ . Suppose that you sold 15 contracts of the euro futures today. If, by September 15th the spot rate is $1.3260/€ , your total profit/loss on your position is (the euro futures contract size is €125,000).
$78,750 loss $78,750 gain €78,750 loss €5,250 loss None of the abov
Suppose you observe the following one-year interest rates, spot exchange rates and futures prices. Futures contracts are available on €10,000. How much risk-free arbitrage profit could
you make on one contract at maturity from this mispricing?
Exchange Rate
Interest Rate
APR
So($/EL
F380(S/E)
$1.45 €1.00
is
4%
$1.48 = €1.00
3%
(Note: If you are unable to view the image shown above, you can download it: interestTable.PNG)
O $159.22.
O $153.10.
$439.42.
Onone of the options.
Chapter 18 Solutions
Study Guide For Brigham/houston's Fundamentals Of Financial Management, 14th
Ch. 18.A - Prob. 1QCh. 18.A - Prob. 1PCh. 18.A - Prob. 2PCh. 18 - Prob. 1QCh. 18 - Why do options typically sell at prices higher...Ch. 18 - Discuss some of the techniques available to reduce...Ch. 18 - Prob. 4QCh. 18 - Prob. 5QCh. 18 - Give two reasons stockholders might be indifferent...Ch. 18 - OPTIONS A call option on Bedrock Boulders stock...
Ch. 18 - OPTIONS The exercise price on one of Boudreaux...Ch. 18 - OPTIONS Which of the following events are likely...Ch. 18 - BLACK-SCHOLES MODEL Assume that you have been...Ch. 18 - Prob. 5PCh. 18 - Prob. 6PCh. 18 - OPTIONS Audrey is considering an investment in...Ch. 18 - Prob. 8PCh. 18 - BINOMIAL MODEL The current price of a stock is 50....Ch. 18 - Prob. 11IC
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- F1arrow_forwardSuppose we wish to borrow $10 million for 3 months, and that the quoted Eurodollar futures price is 94.80. If the interest rate on the loan is based on the 3-month LIBOR rate, what will we pay to repay the loan (that is, the total amount we need to repay including principal and interest based on LIBOR)? Question 16 options: $10, 160, 000.00 $10, 130,000.00 $10, 115,000.00 $10, 640,000.00 $10,520,000.00arrow_forwardAssume 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 $0.0389arrow_forward
- Paragraph Styles a) If your firm has a payment of 100 million euros due one year from now, how would you hedge the FX risk in this payment with 125 000 euros futures contracts? Iarrow_forwardSuppose that the September 90-day Eurodollar futures contract has a price of $96.4 today. A firm expects to borrow $50 million for 3 months in September at the LIBOR, and intends to use the Eurodollar futures contract to hedge its future borrowing rate. a) What rate can the firm secure today by using the Eurodollar contract? b) Will the firm go long or short the Eurodollar contract? How many contracts will it buy/sell? c) Suppose that the spot 3-month LIBOR is 4% (annualized) in September. Explain how the firm met its objective of locking in a return on its future borrowing.arrow_forwardAn investor enters into a 2-year swap agreement to swap euros at $1.32 per euro. Soon after the swap is created forward prices rise and the new swap price on a similar swap is $1.45. If dollar denominated interest rates are 4.0% and 4.5% on 1- and 2-year zero coupon government bonds, respectively, what is the gain to be made from unwrapping the original swap agreement?arrow_forward
- Suppose that the spot price of the euro is currently $1.10. The 1-year futures price is $1.15. Is the interest rate higher in the United States or the euro zone?arrow_forwardAssume a call option on euros is written with a strike price of $1.2500/€ at a premium of 3.80¢ per euro ($0.0380/€) and with an expiration date three months from now. The option is for €100,000. Calculate your profit or loss should you exercise before maturity at a time when the euro is traded spot at a. $1.10 / € b. $1.15 /€ c. $1.20 / € d. $1.25 /€ e. $1.30 / € f. $1.35 /€ g. $1.4 /€arrow_forward13. The FTSE100 on August 1, 2021 trades at 6250 points. The 6-month UK T-bill rate (in discrete compounding) is 0.50% and the futures price on FTSE100 for a contract with February 2021 delivery is equal to 6179.29 points. Determine the dividend yield (annual basis, discrete compounding) on the FTSE100 which is implied by the market futures price.arrow_forward
- The IMM index price in yesterday's newspaper for a September Eurodollar futures contract is 95.23. The IMM index price in today's newspaper for the contract mentioned above is 95.25. How much is the change in the actual futures price of the contract since the previous day? $25 $50 $75 $100 .arrow_forwardThe Mexican peso futures contract is trading at 0.07713 $/MXN. Contract size for the Mexican peso future is 500,000 pesos. You believe the spot price will be 0.08365 $/MXN at expiration. What speculative position would you enter into to profit from your beliefs? Calculate your anticipated profits assuming you take a position in three contracts. What is the size of your profit or loss if the futures price is indeed an unbiased predictor of the future spot price and this price materializes? Do problem 1 again assuming you believe the spot price will be 0.07061 $/MXN.arrow_forwardAssume that the Euro (EUR) futures price for September is USD 1.90. Given that 115,000 units are in a Euro futures contract, the seller of Euro futures will receive which of the following? a. EUR 115000 b. EUR 60526 c. USD 60526 d. USD 218500 e. EUR 218500arrow_forward
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