Derivatives : Derivatives are some financial instruments which are meant for managing risk and safeguard the risk created by other financial instruments. These financial instruments derive the values from the future value of underlying security or index. Some examples of derivatives are forward contracts, interest rate swaps, futures, and options. Interest rate swap : This is a type of derivative used by two parties under a contract to exchange the consequences (net cash difference between interest payments) of fixed interest rate for floating interest rate, or vice versa, without exchanging the principal or notional amounts. Fair value hedge : If the company uses any derivative to cover the risk due to fair value changes of asset, liability, or a commitment, the derivative is classified as fair value hedge. This type of hedge focusses to control the risk due to future price changes. The unrealized gain or loss on derivative, unrealized gain or loss on the bonds, and net effect of hedging arrangement on earnings, if interest rates declined.

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Answer 1

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Chapter A, Problem A.2P

(1)

To determine

Derivatives: Derivatives are some financial instruments which are meant for managing risk and safeguard the risk created by other financial instruments. These financial instruments derive the values from the future value of underlying security or index. Some examples of derivatives are forward contracts, interest rate swaps, futures, and options.

Interest rate swap: This is a type of derivative used by two parties under a contract to exchange the consequences (net cash difference between interest payments) of fixed interest rate for floating interest rate, or vice versa, without exchanging the principal or notional amounts.

Fair value hedge: If the company uses any derivative to cover the risk due to fair value changes of asset, liability, or a commitment, the derivative is classified as fair value hedge. This type of hedge focusses to control the risk due to future price changes.

The unrealized gain or loss on derivative, unrealized gain or loss on the bonds, and net effect of hedging arrangement on earnings, if interest rates declined.

(2)

To determine

The unrealized gain or loss on derivative, unrealized gain or loss on the bonds, and net effect of hedging arrangement on earnings, if interest rates increased.

(3)

To determine

The unrealized gain or loss on derivative, unrealized gain or loss on the bonds, and net effect of hedging arrangement on earnings, if fair value has further increased, and the reason is not due to changes in interest rate.

(4)

To determine

The unrealized gain or loss on derivative, unrealized gain or loss on the bonds, and net effect of hedging arrangement on earnings, if notional amount was $12,000,000 and principal amount was $10,000,000.

(5)

To determine

The unrealized gain or loss on derivative, unrealized gain or loss on the bonds, and net effect of hedging arrangement on earnings, for the investor

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Answer 2

Question

Chapter A, Problem A.2P

(1)

To determine

Derivatives: Derivatives are some financial instruments which are meant for managing risk and safeguard the risk created by other financial instruments. These financial instruments derive the values from the future value of underlying security or index. Some examples of derivatives are forward contracts, interest rate swaps, futures, and options.

Interest rate swap: This is a type of derivative used by two parties under a contract to exchange the consequences (net cash difference between interest payments) of fixed interest rate for floating interest rate, or vice versa, without exchanging the principal or notional amounts.

Fair value hedge: If the company uses any derivative to cover the risk due to fair value changes of asset, liability, or a commitment, the derivative is classified as fair value hedge. This type of hedge focusses to control the risk due to future price changes.

The unrealized gain or loss on derivative, unrealized gain or loss on the bonds, and net effect of hedging arrangement on earnings, if interest rates declined.

(2)

To determine

The unrealized gain or loss on derivative, unrealized gain or loss on the bonds, and net effect of hedging arrangement on earnings, if interest rates increased.

(3)

To determine

The unrealized gain or loss on derivative, unrealized gain or loss on the bonds, and net effect of hedging arrangement on earnings, if fair value has further increased, and the reason is not due to changes in interest rate.

(4)

To determine

The unrealized gain or loss on derivative, unrealized gain or loss on the bonds, and net effect of hedging arrangement on earnings, if notional amount was $12,000,000 and principal amount was $10,000,000.

(5)

To determine

The unrealized gain or loss on derivative, unrealized gain or loss on the bonds, and net effect of hedging arrangement on earnings, for the investor

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Answer 3

Question

Chapter A, Problem A.2P

(1)

To determine

Derivatives: Derivatives are some financial instruments which are meant for managing risk and safeguard the risk created by other financial instruments. These financial instruments derive the values from the future value of underlying security or index. Some examples of derivatives are forward contracts, interest rate swaps, futures, and options.

Interest rate swap: This is a type of derivative used by two parties under a contract to exchange the consequences (net cash difference between interest payments) of fixed interest rate for floating interest rate, or vice versa, without exchanging the principal or notional amounts.

Fair value hedge: If the company uses any derivative to cover the risk due to fair value changes of asset, liability, or a commitment, the derivative is classified as fair value hedge. This type of hedge focusses to control the risk due to future price changes.

The unrealized gain or loss on derivative, unrealized gain or loss on the bonds, and net effect of hedging arrangement on earnings, if interest rates declined.

(2)

To determine

The unrealized gain or loss on derivative, unrealized gain or loss on the bonds, and net effect of hedging arrangement on earnings, if interest rates increased.

(3)

To determine

The unrealized gain or loss on derivative, unrealized gain or loss on the bonds, and net effect of hedging arrangement on earnings, if fair value has further increased, and the reason is not due to changes in interest rate.

(4)

To determine

The unrealized gain or loss on derivative, unrealized gain or loss on the bonds, and net effect of hedging arrangement on earnings, if notional amount was $12,000,000 and principal amount was $10,000,000.

(5)

To determine

The unrealized gain or loss on derivative, unrealized gain or loss on the bonds, and net effect of hedging arrangement on earnings, for the investor

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Answer 4

Question

Chapter A, Problem A.2P

(1)

To determine

Derivatives: Derivatives are some financial instruments which are meant for managing risk and safeguard the risk created by other financial instruments. These financial instruments derive the values from the future value of underlying security or index. Some examples of derivatives are forward contracts, interest rate swaps, futures, and options.

Interest rate swap: This is a type of derivative used by two parties under a contract to exchange the consequences (net cash difference between interest payments) of fixed interest rate for floating interest rate, or vice versa, without exchanging the principal or notional amounts.

Fair value hedge: If the company uses any derivative to cover the risk due to fair value changes of asset, liability, or a commitment, the derivative is classified as fair value hedge. This type of hedge focusses to control the risk due to future price changes.

The unrealized gain or loss on derivative, unrealized gain or loss on the bonds, and net effect of hedging arrangement on earnings, if interest rates declined.

(2)

To determine

The unrealized gain or loss on derivative, unrealized gain or loss on the bonds, and net effect of hedging arrangement on earnings, if interest rates increased.

(3)

To determine

The unrealized gain or loss on derivative, unrealized gain or loss on the bonds, and net effect of hedging arrangement on earnings, if fair value has further increased, and the reason is not due to changes in interest rate.

(4)

To determine

The unrealized gain or loss on derivative, unrealized gain or loss on the bonds, and net effect of hedging arrangement on earnings, if notional amount was $12,000,000 and principal amount was $10,000,000.

(5)

To determine

The unrealized gain or loss on derivative, unrealized gain or loss on the bonds, and net effect of hedging arrangement on earnings, for the investor

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Answer 5

Chapter A, Problem A.2P

(1)

To determine

Derivatives: Derivatives are some financial instruments which are meant for managing risk and safeguard the risk created by other financial instruments. These financial instruments derive the values from the future value of underlying security or index. Some examples of derivatives are forward contracts, interest rate swaps, futures, and options.

Interest rate swap: This is a type of derivative used by two parties under a contract to exchange the consequences (net cash difference between interest payments) of fixed interest rate for floating interest rate, or vice versa, without exchanging the principal or notional amounts.

Fair value hedge: If the company uses any derivative to cover the risk due to fair value changes of asset, liability, or a commitment, the derivative is classified as fair value hedge. This type of hedge focusses to control the risk due to future price changes.

The unrealized gain or loss on derivative, unrealized gain or loss on the bonds, and net effect of hedging arrangement on earnings, if interest rates declined.

(2)

To determine

The unrealized gain or loss on derivative, unrealized gain or loss on the bonds, and net effect of hedging arrangement on earnings, if interest rates increased.

(3)

To determine

The unrealized gain or loss on derivative, unrealized gain or loss on the bonds, and net effect of hedging arrangement on earnings, if fair value has further increased, and the reason is not due to changes in interest rate.

(4)

To determine

The unrealized gain or loss on derivative, unrealized gain or loss on the bonds, and net effect of hedging arrangement on earnings, if notional amount was $12,000,000 and principal amount was $10,000,000.

(5)

To determine

The unrealized gain or loss on derivative, unrealized gain or loss on the bonds, and net effect of hedging arrangement on earnings, for the investor

Answer 6

Chapter A, Problem A.2P

(1)

To determine

Derivatives: Derivatives are some financial instruments which are meant for managing risk and safeguard the risk created by other financial instruments. These financial instruments derive the values from the future value of underlying security or index. Some examples of derivatives are forward contracts, interest rate swaps, futures, and options.

Interest rate swap: This is a type of derivative used by two parties under a contract to exchange the consequences (net cash difference between interest payments) of fixed interest rate for floating interest rate, or vice versa, without exchanging the principal or notional amounts.

Fair value hedge: If the company uses any derivative to cover the risk due to fair value changes of asset, liability, or a commitment, the derivative is classified as fair value hedge. This type of hedge focusses to control the risk due to future price changes.

The unrealized gain or loss on derivative, unrealized gain or loss on the bonds, and net effect of hedging arrangement on earnings, if interest rates declined.

Answer 7

Chapter A, Problem A.2P

(1)

To determine

Derivatives: Derivatives are some financial instruments which are meant for managing risk and safeguard the risk created by other financial instruments. These financial instruments derive the values from the future value of underlying security or index. Some examples of derivatives are forward contracts, interest rate swaps, futures, and options.

Interest rate swap: This is a type of derivative used by two parties under a contract to exchange the consequences (net cash difference between interest payments) of fixed interest rate for floating interest rate, or vice versa, without exchanging the principal or notional amounts.

Fair value hedge: If the company uses any derivative to cover the risk due to fair value changes of asset, liability, or a commitment, the derivative is classified as fair value hedge. This type of hedge focusses to control the risk due to future price changes.

The unrealized gain or loss on derivative, unrealized gain or loss on the bonds, and net effect of hedging arrangement on earnings, if interest rates declined.

Answer 8

(2)

To determine

The unrealized gain or loss on derivative, unrealized gain or loss on the bonds, and net effect of hedging arrangement on earnings, if interest rates increased.

Answer 9

(2)

To determine

The unrealized gain or loss on derivative, unrealized gain or loss on the bonds, and net effect of hedging arrangement on earnings, if interest rates increased.

Answer 10

(3)

To determine

The unrealized gain or loss on derivative, unrealized gain or loss on the bonds, and net effect of hedging arrangement on earnings, if fair value has further increased, and the reason is not due to changes in interest rate.

Answer 11

(3)

To determine

The unrealized gain or loss on derivative, unrealized gain or loss on the bonds, and net effect of hedging arrangement on earnings, if fair value has further increased, and the reason is not due to changes in interest rate.

Answer 12

(4)

To determine

The unrealized gain or loss on derivative, unrealized gain or loss on the bonds, and net effect of hedging arrangement on earnings, if notional amount was $12,000,000 and principal amount was $10,000,000.

Answer 13

(4)

To determine

The unrealized gain or loss on derivative, unrealized gain or loss on the bonds, and net effect of hedging arrangement on earnings, if notional amount was $12,000,000 and principal amount was $10,000,000.

Answer 14

(5)

To determine

The unrealized gain or loss on derivative, unrealized gain or loss on the bonds, and net effect of hedging arrangement on earnings, for the investor

Answer 15

(5)

To determine

The unrealized gain or loss on derivative, unrealized gain or loss on the bonds, and net effect of hedging arrangement on earnings, for the investor

Answer 16

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Answer 17

Expert Solution & Answer

Answer 18

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Answer 19

Ch. A - Prob. A.1Q Ch. A - Prob. A.2Q Ch. A - Prob. A.3Q Ch. A - Prob. A.4Q Ch. A - Prob. A.5Q Ch. A - Prob. A.6Q Ch. A - Prob. A.7Q Ch. A - Prob. A.1E Ch. A - Prob. A.2E Ch. A - Prob. A.3E

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The unrealized gain or loss on derivative, unrealized gain or loss on the bonds, and net effect of hedging arrangement on earnings, if interest rates increased.

The unrealized gain or loss on derivative, unrealized gain or loss on the bonds, and net effect of hedging arrangement on earnings, if fair value has further increased, and the reason is not due to changes in interest rate.

The unrealized gain or loss on derivative, unrealized gain or loss on the bonds, and net effect of hedging arrangement on earnings, if notional amount was $12,000,000 and principal amount was $10,000,000.

The unrealized gain or loss on derivative, unrealized gain or loss on the bonds, and net effect of hedging arrangement on earnings, for the investor

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