Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
12th Edition
ISBN: 9781259144387
Author: Richard A Brealey, Stewart C Myers, Franklin Allen
Publisher: McGraw-Hill Education
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Question
Chapter 26, Problem 20PS
Summary Introduction
To compute: The interest rate met by traders in gold futures.
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Students have asked these similar questions
A one-year gold futures contract is selling for $1,247. Spot gold prices are $1,200 and the one-year risk-free rate is 2%.
a) According to spot-futures parity, what should be the futures price?
b) What risk-free strategy can investors use to take advantage of the futures mispricing, and what would be the profits from that strategy?
Consider a 12-months futures contract on silver. Assume no income and that it costs $X per ounce per year to store silver, with payment being made at the end of the year. The spot price is $26 per ounce and the risk free rate is 4% per annum for all maturities, based on continuous compounding. The futures price of the 12-month futures contract on silver is $29 per ounce. Assume that no arbitrage Futures-Spot parity with storage costs holds. The storage cost per ounce per year ($X) is,
a. $2.88
b. $1.86
c. $1.94
d. $3.00
e. $2.15
You are planning to make a hedging. The standard deviation of semiannual changes in a futures price on the gold is $0.96. The standard deviation of semiannual changes of the gold price is $0.87 and the coefficient of correlation between the two changes is 0.9. What is the optimal hedge ratio for a 6-month contract?
Choose correct answer:
a. The optimal hedge ratio is 0.8352
b. The optimal hedge ratio is 0.1
c. The optimal hedge ratio is 0.9931
d. The optimal hedge ratio is 0.8156
Chapter 26 Solutions
Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
Ch. 26 - Vocabulary check Define the following terms: a....Ch. 26 - Prob. 2PSCh. 26 - Prob. 3PSCh. 26 - Futures prices Calculate the value of a six-month...Ch. 26 - Prob. 5PSCh. 26 - Prob. 6PSCh. 26 - Prob. 7PSCh. 26 - Prob. 8PSCh. 26 - Prob. 9PSCh. 26 - Prob. 10PS
Ch. 26 - Hedging You own a 1 million portfolio of aerospace...Ch. 26 - Prob. 12PSCh. 26 - Prob. 13PSCh. 26 - Catastrophe bonds On some catastrophe bonds,...Ch. 26 - Futures contracts List some of the commodity...Ch. 26 - Prob. 16PSCh. 26 - Prob. 17PSCh. 26 - Prob. 18PSCh. 26 - Prob. 20PSCh. 26 - Prob. 21PSCh. 26 - Prob. 22PSCh. 26 - Hedging What is meant by delta () in the context...Ch. 26 - Futures and options A gold-mining firm is...Ch. 26 - Prob. 25PSCh. 26 - Hedging Price changes of two gold-mining stocks...Ch. 26 - Risk management Petrochemical Parfum (PP) is...Ch. 26 - Total return swaps Is a total return swap on a...Ch. 26 - Prob. 30PSCh. 26 - Prob. 31PSCh. 26 - Prob. 32PSCh. 26 - You are a vice president of Rensselaer Advisers...
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