Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
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 6PS
Summary Introduction

To compute: The convenience yield.

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Consider a contract that pays out $1,103 in 6 months, $139 in 12 months, $72 in 18 months, $5 in 2 years. Price this contract, assuming the following yield curve: time spot rate 6-month 1% 12-month 2% 18-month 2.5% 24-month 2.8% Assume semi-annual compounding. Round your answer to the nearest cent (2 decimal places).
Suppose the price of copper is $4.10 per ounce. Copper purchased as an investment must be stored until it is sold. The storage cost must be paid monthly in advance and is $0.10 per ounce per month. Assume the risk-free interest rate is 3.5% compounded continuously. Find the price of a forward contract for an ounce of copper due to be delivered to the buyer in 6 months.
Suppose that a four-year FRN pays three- month Libor plus 1% on a quarterly basis. Currently, three-month Libor is 2%. The price of the floater is 98 per 100 of par value. What is discount margin?
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