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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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
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
Consider a 6-months futures contract on gold. We assume no income and that $1 per ounce per 6-months to store gold, with the payment being made at the end of the period. The spot price is $1620 and risk free rate is 2% for all maturities. How can an arbitrageur earn profit is the price of 6-month gold futures is 1630$?
6. 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 $36 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 $39 per ounce. Assume that no arbitrage Futures-Spot
parity with storage costs holds. The storage cost per ounce per year ($X) is,
a. $2.88
b. $1.47
c. $1.94
d. $1.53
e. $2.15
7. Consider a FRA where S&L Inc. agrees to lend $100 mil. to a FRA dealer at a fixed
rate for 1 year starting in 5 years. The contractual rate is X per annum. Assume that in
5
years the realized 1-year LIBOR is 6.5% per annum. At FRA’s settlement date the
dealer pays S&L Inc., therefore it must be that X is
and the settlement amount
equals
a. less than 6.5%; S&L’s gain divided by 1.065
b. equals to 6.5%; S&L's gain divided by 1.065
c. greater than 6.5%;…
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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