A non-dividend paying asset is current priced at $25 and the risk-free interest rate is 8% per annum. Today, you enter into a six-month futures contract to buy a unit of this asset. Three months from now the underlying price has fallen to $20 (but note that the interest rate has not moved). Which of the answers below is closest to the fall in the futures price? Use discrete discounting. a. $4.50 b. $6.50 c. $7.50 d. $5.50
Q: 2. A new electric power generation plant is expected to cost $42,000,000 to complete. The revenues…
A: Capital budgeting techniques indicate the set of tools employed to assess any project or…
Q: You are the CFO of Carla Vista, Inc.a retailer of the exercise machine Carla Vista6 and related…
A: The cash outflows are related to acquiring capital assets like machinery, building, equipment, etc.…
Q: long (in years) would $800 have to be invested at 11.6%, compounded continuously, to earn $300…
A: The money invested in deposits grow with time due to the accumulation off interest over the period…
Q: You currently owe $118,580.44 on your mortgage loan, with an interest rate of 6.8%. Interest rates…
A: A loan is a financial arrangement in which one or more people, companies, or other entities lend…
Q: You want to be able to withdraw $50,000 each year for 20 years. Your account earns 5% interest
A: The amount of annual withdrawal of $50,000 each year is an annuity. We will have to determine the…
Q: Jim and Ann bought a house with a down payment of $16,000 and a $158,000 loan. The loan was for 25…
A: A mortgage is a covered loan provided specifically for the purchase or maintenance of the real…
Q: (a) Determine the expected return of security X (b) To reduce the systematic risk of the portfolio,…
A:
Q: A project has an initial cost of $40,000, expected net cash inflows of $9,000 per year for 7 years,…
A: NPV is net present value and most used capital budgeting techniques used based on time value of…
Q: 1(A).Why did Lenders/Banks start to securitize mortgages (creating Collateralized Mortgages or Debt…
A: CMOs stand for collateralized mortgage obligations. CDOs stand for collateralized debt obligations.…
Q: at is the correct way to determine the value of a long forward position at expiration? The value is…
A: Foward contracts are that are settled in the future times and they are settled on the margins and…
Q: You have accumulated savings of $50,000 and decided that you will invest in one of the following…
A: Here, To Find: Part A. Annual rate of return from Nationalism Commercial Bank bonds =? Part B.…
Q: Consider the following income statement: Sales $909,407 Costs…
A: Operating cash flow (OCF) is a measurement of how much money a company generates through regular…
Q: Crane, Inc.is considering investing in a new production line for eye drops. Other than investing in…
A: Data given: At the beginning of the project: Increase cash and cash equivalents by $34,000 Increase…
Q: USING EXCEL SPREADSHEET FUNCTIONS ONLY
A: First find the present value of all 10 payments of 900, discounted by 18%. So use the formula…
Q: Compute the principal (in $) for the loan. Use ordinary interest when time is stated in days.…
A: Principal amount The actual amount borrowed by the borrower or lent by the financial institution is…
Q: n March 1 the price of a commodity is $1,000 and the December futures price is $1,015. On November 1…
A: The futures are used for hedging and used for reducing the risk in the spot market because loss in…
Q: A local business plans to invest $800 to host a fun run, and they expect to sell tickets worth…
A: To determine if the investment is good or not we will have to determine the expected returns from…
Q: An investor purchases a call option on ABC stock with a strike price of $50 for a premium of…
A: An option contract offers its buyer to buy or sell the underlying asset at a preset price on a…
Q: For the last four years Joe has made deposits of $200 at the end of every six months earning…
A: Annuity is a series of cash follows which occur on a regular interval for a defined period. When…
Q: Sarafina is making monthly payments into an annuity. She wants to have $900 in the fund to buy a new…
A: Future value of annuity With periodic interest rate (r), period (n) and annuity (PMT), the future…
Q: So-called subprime mortgages were typically all of the following, except for mortgages granted to…
A: Subprime mortgages are mortgages that are given to those individuals who will most likely have…
Q: The Wagner Company tries to follow a pure "residual" dividend policy. Earnings and dividends last…
A: We have to find the total amount of dividends Wagner should pay, under the pure "residual" dividend…
Q: ssume that the CAPM is a good description of stock price returns. The market expected return is 7%…
A: Alpha shows the risk adjusted perfomance of the portfolio it is measured as the how much is the rate…
Q: Assume AUD = 0.58 GBP and inflation is 3.5% pa in Australia and 7% pa in Great Britain. Estimate the…
A: Data given: AUD=0.58 GBP Inflation=3.5% pa in Australia Inflation=7% pa in Great Britain Required:…
Q: If an investor believes that the expected return is lower than the required rate of the return, the…
A: Expected return -It is the expected outcome from an investment that is based upon known past data on…
Q: Maalaga borrowed a three-year loan for 80,000. If the debt a erest at a rate of 8% per month…
A: The money borrowed is paid by the monthly payment and they are easy to pay the monthly payments and…
Q: You need to have $18,000 to pay for your car in 7 years. How much do you need to deposit today in a…
A: Present Value helps in determining the value of any amount today after considering the fact that…
Q: A bond offers a $50 coupon, has a face value of $1,000, and 4 years to maturity. If the interest…
A:
Q: Complete the following table: (Do not round net price equivalent rate and single equivalent discount…
A: Net price equivalent rate is the rate which is actually used in determining the net price of the…
Q: New asset costs $12,000. The ol asset has a book value of $0 and will be sold for $3,000, increase…
A: Initial outlay is amount of investment that is made in assets of the company including the increase…
Q: 5. 6. 7. Miranda wants to calculate the monthly payment for a loan to purchase the Beecher Street…
A: To figure out how much a loan will cost, use the loan payment formula. The formula for calculating…
Q: You enter into a 9-month forward contract on a non-dividend paying stock when the stock price is £38…
A: Given: Spot price = £38 Periods = 9 months Interest rate = 10%
Q: Using single-period arithmetic returns, calculate the value after two periods for the realized…
A: The amount that a present investment will gain in value over time when kept in a compound interest…
Q: Net Sales = $88,122 Total Assets = $189,100 Calculate Asset Turnover ( Round to nearest hundredth…
A: When actual or intangible goods, services, or assets are traded for money and include two or more…
Q: The percentage y of U.S. households owning Individual Retirement Accounts (IRAS) in year xis…
A: Y is the Percentage of U.S. households owning Individual Retirement Accounts (IRAs) X is the…
Q: Using the data generated in the graph, show what the information looks like in a spreadsheet. a)…
A: Security market line (SML) is a grapical representation of the Capital Asset Pricing Model. All the…
Q: ecall the Value of the Firm0 = Ʃ FCFt / [1 + WACC]t with t from 1 to ∞. The owners of Martial Arts…
A: Intrinsic value of the firm can be determined from the present value of free cash flow and terminal…
Q: Stocks A and B have the following data. Assuming the stock market is efficient and the stocks prices…
A: The price of stock can be determined based on the present value of dividends and present value of…
Q: Bar is a company that sells deluxe chocolate and candy bars based in Illinois. The company is…
A: Working capital is the short term needed to do the payments for increase in sales and this increases…
Q: The spot price of an investment asset is $35 and the risk-free rate for all maturities is 5% with…
A: Given: Particulars Amount Spot price $35 Risk free rate 5% First year income $2.00 Second…
Q: 2. Maalaga borrowed a three-year loan for 80,000. If the debt acc nterest at a rate of 8% per month…
A: Loans are paid by the monthy equal an fixed types of monthly installments and these monthly payments…
Q: Bliss Bar is a company that sells deluxe chocolate and candy bars based in Illinois. The company is…
A: Net present value is the technique used for making a decision about the investment to be done in a…
Q: How does the interest paid on U.S. savings bonds compare to the savings account rates paid by banks…
A: Interest is the return paid on the investment. It is proportionate to the amount of risk involved in…
Q: A 2-year Treasury security currently earns 1.97 percent. Over the next two years, the real risk-free…
A: The market risk premium is the expected future return in excess of risk-free returns on investment.…
Q: growth stocks proxy preemptive right
A: Stocks are shares of a company and is essentially representative of the ownership in a company.…
Q: Kristen's credit card APR is 25.4% compounded daily. What is her actual interest rate per yea O…
A: The actual interest rate will be the effective annual rate (EAR). This takes into consideration the…
Q: (Annual percentage yield) Compute the cost of the following trade credit terms using the compounding…
A: APR stands for annual percentage rate, which is regarded as the nominal rate, and EAR stands for an…
Q: What are the things that can be done to increase a FICO score.
A: We have to discuss the things one can do to increase a FICO score.
Q: Please explain & give me some example that how fund manager use option to hedge their stock…
A: An option contract indicates an agreement to buy or sell the underlying asset for the price…
Q: Complete the following using compound future value. (Use the Table provided.) Note: Do not round…
A: The time period is 3 years Amount of principal is $17,100 The interest rate is 4% Total number of…
A non-dividend paying asset is current priced at $25 and the risk-free interest rate is 8% per annum. Today, you enter into a six-month futures contract to buy a unit of this asset. Three months from now the underlying price has fallen to $20 (but note that the interest rate has not moved). Which of the answers below is closest to the fall in the futures price? Use discrete discounting.
Step by step
Solved in 2 steps
- suppose you buy an non-dividend paying asset at $50 and sell a 6 month futures contract at $53. What is your profit or lost at expiration if the asset price down to $47? current 6 month interest is 0.25% p.a. (Ignore carrying costs and transaction cost)? What happens to the basis through the contract's life? a.none of the above b.it initially decreases, then increases c.it initially increases, then decreases d.it moves toward zero at expiry e.it remains relatively steadyYou enter into a 1-year futures contract on a non-dividend paying stock when the stock price is $100 and the risk-free interest rate is 5% per annum. Six months later the stock price has fallen to $90, and the interest rate is 4% per annum. Which of the answers below is closest to the change in the futures price? Assume discrete compounding and discounting. Question 6Answer a. -12.34 b. -11.40 c. -10.00 d. -13.20If the current risk free rate is 2.3% and a particular security (priced today at $45) pays no dividends what is the best estimate of the one year futures price of this asset?(use at least 3 decimals)
- Suppose the quoted futures price for delivery in 1 year is $7.10. The current underlying price is $7 and the continuously compounded interest rate is 5%. The underlying does not pay dividends. How could you make a riskless arbitrage profit? Question 2Answer a. buy futures contracts, short sell the stock and invest in a bank account b. borrow from the bank to buy futures contracts and short sell the stock c. sell futures contracts, borrow and buy the stock d. sell future contacts, short sell the stock and invest in a bank accountThe futures price for an asset is $60. Expiration is in 3 months, and the risk free rate is 4%. If the asset does not pay a dividend, what should the spot price be if there is no absence of arbitrage?Consider a 6-month futures contract on a financial asset with dividend yield q=3.96% per year. Risk free rate is 10% per year. Current value of an asset is S0=$25. What should be the 6-month futures price on this asset, if there is no convenience yield and storage costs?
- A European call that will expire in one year is currently trading for $3. Assume the risk-free rate (based on continuous compounding) is 5%, the underlying stock price is $60 and the strike price is $55. a. Is there an arbitrage opportunity? b. Describe exactly what a trader should do to take advantage of the arbitrage opportunity assuming it exists. c. Determine the present value of the profit that the trader can earn assuming you identify an arbitrage opportunity. Use at least four decimal places for those questions that require a numerical answer.a. A futures contract on a non-dividend-paying stock index with current value $130 has a maturity of one year. If the T-bill rate is 6%, what should the futures price be? b. What should the futures price be if the maturity of the contract is 2 years? c. What if the interest rate is 9% and the maturity of the contract is 2 years? Complete this question by entering your answers in the tabs below. Required A Required B Required C A futures contract on a non-dividend-paying stock index with current value $130 has a maturity of one year. If the T-bill rate is 6%, what should the futures price be? Note: Round your answer to 2 decimal places. Futures price6.Assume we have the following information: Spot price : 1146.00 Actual futures price : 1192.50 Theoretical futures price : 1160.00 Maturity : 3 months a. Is the futures fairly priced? Suppose an arbitrageur wish to take advantage of this opportunity. He has RM10,000,000.00 which he can fund at the current risk-free rate of 5%. b. What should he do? c. How many contracts should be shorted or bought? d. Assume that the arbitrageur maintains this position until contract expiry at which time futures and cash prices have converged to 1165. How much profit would he makes?
- Question 2. You have been asked to value a Arithmetic Lookback option which expires in six months time. At the end of the six months the buyer is paid the arithmetic mean of the underlying stock over the contract period. Using the compressed stock tree presented in Figure 1 and assuming an annual interest rate of 4.5% determine the fair price of the Arithmetic Lookback option. Why are Lookback options considered to he expensive? 182.5 158.7 138 138 120 120 104.4 104.4 90.8 79 Figure 1: Compressed stock tree1. Suppose a financial asset, ABC, is the underlying asset for a futures contract with settlement of 6 months from now. You know the following about this financial asset and futures contract in the cash market ABC is selling for $80; ABC pays $8 per year in two semiannual payments of $4, and the next semiannual payment is due exactly 6 months from now; and the current 6month interest rate at which funds can be loaned or borrowed is 6%. What action would you take if the futures price is $83? What action would you take if the futures price is $76?Consider the futures contract on XYZ Inc. stock. Suppose that the annual dividend yield for the stock is 2.5% and the risk-free rate is 6.3%. Both rates are based on continuous compounding. The current futures price of the XYZ Inc. futures contract maturing in 18 months is $900 per share. Assume that the no arbitrage Futures-Spot parity when asset provides a known yield holds. What is the current spot price of XYZ Inc. per share? Please explain and show calculation. a. $934.39 b. $952.79 c. $850.13 d. $900.00 e. $944.37