b-1. After considering the hedging, what is the net cost to the firm of the increased interest expense of $89,000? Net cost b-2. What percent of this $89,000 cost did the treasurer effectively hedge away? (Input your answer as a percent rounded to 2 decimal places.)
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- The Zinn Company plans to issue $10,000,000 of 20-year bonds in June to help finance a new research and development laboratory. The bonds will pay interest semiannually. It is now November, and the current cost of debt to the high-risk biotech company is 11%. However, the firm's financial manager is concerned that interest rates will climb even higher in coming months. The following data are available: Futures Prices: Treasury Bonds-$100,000; Pts. 32nds of 100% Delivery Month Open Low High (3) Settle Change (5) (6) (2) (4) 95'130 94'220 95'050 +0'070 94'280 96'030 96'030 95'130 95'250 +0'080 95'170 +0'080 95'030 95'170 95'030 (1) Dec Mar June Open Interest (7) 591,944 120,353 13,597 a. What is the implied yield on the June futures contract? How many futures contracts will be needed to hedge potential losses in bond proceeds (based on current market conditions) due to waiting (round up to the nearest integer)? What is the total value of the hedge position? b. Assume that interest rates…It is early January 2022. CBG Resources limited intends to borrow £ 2 million in May for three months and is concerned about the risk of rising interest rates. It can borrow at LIBOR plus 1%. The current three-month LIBOR rate (spot rate) is 4.625%. June futures for short sterling have a current market price of 95.35. REQUIRED: Show how CBG Resources can set up for the exposure to the risk of increase in the three month LIBOR rate. Calculate the gain/loss from the interest rate future contract if in May the three month LIBOR is 5.5% and the June futures price is 94.25.A business plans to borrow approximately $40 million in short-term funding through the issue of commercial paper in three months’ time. The business does not have a view on what is likely to happen to interest rates over the next three months, but it would be very satisfied if it could obtain its funding at the current yield. Using the following data, show how 90-day bank-accepted bills futures contracts can be used to hedge the interest rate risk to which the business is exposed. Show the calculation and timing of all transactions and cash flows (ignore transaction costs and marginrequirements). Today’s data: current commercial paper yields 6.00 per cent perannum 90-day bank-accepted bills futures contract 93.75. Data in threemonths: commercial paper yields 7.00 per cent perannum 90-day bank-accepted bills futures contract93.25.
- ABC Corporation wishes to raise money by selling a 90-day promissory note in the short-term money markets. The note promises to pay the holder $17,000,000 at maturity. If yields on similar risk notes are currently 2.8% p.a., how much money will ABC Corporation receive for the note?Dudley Savings Bank wishes to take a position in Treasury bond futures contracts, which currently have a quote of 125 - 100. Dudley Savings thinks interest rates will go down over the period of investment. The face value of the bond underlying the futures contract is $100,000. a. Should the bank go long or short on the futures contracts? b. Given your answer to part (a), calculate the net profit to Dudley Savings Bank if the price of the futures contracts increases to 125 - 210. (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 2 decimal places. (e.g., 32.16)) c. Given your answer to part (a), calculate the net profit to Dudley Savings Bank if the price of the futures contracts decreases to 124 - 270. (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 2 decimal places. (e.g., 32.16)) a. b. C. X Answer is complete but not entirely correct. The futures…As corporate treasurer, you will purchase K1 million of bonds for the sinking fund in three months you believe rates will soon fall and would like to repurchase the company’s sinking fund bonds, which currently are selling below par, in advance of requirements. Unfortunately, you have to obtain approval from the board of directors for such a purchase, and this could take up to two months. What action can you take in the futures market to hedge any adverse movements in bond yields and prices until you actually can buy the bonds? Will you be long, or short? Why?
- It is November 9th. You are managing a bond portfolio worth $6 million. The duration of the portfolio in 6 months will be 9.5 years. You decide to hedge the exposure of interest rate changes in the next 6 months by using Eurodollar futures. The 3-month June Eurodollar futures price is quoted as 96.00. How should you hedge if using the June Eurodollar futures contracts? Long 12 contracts Short 12 contracts Short 58 contracts Short 230 contractsIt is now January. The current annual interest rate is 6.6%. The June futures price for gold is $1658.30, while the December futures price is $1,666. Assume the June contract expires in exactly 6 months and the December contract expires in exactly 12 months. a. Calculate the appropriate price for December futures using the parity relationship? (Do not round intermediate calculations. Roun your answer to 2 decimal place.) Price for December futures b. Is there an arbitrage opportunity here? Yes O NoThe spot price of gold today is $1, 507 per troy ounce, and the futures price for a contract maturing in seven months is $1, 548 per troy ounce. If Golddy Plc puts on a futures hedge today and lifts the hedge after five months. a) Calculate the cost of carry for gold. b) If the spot price of gold in five months' time turns out to be $1,520. What will be the futures price five months from now? c) How much is the basis in five months' time?
- Suppose that you trade a forward contract today that matures after one year. The forward price is $105 and the simple interest rate is 7 percent per year. If after six months from today, the spot price is going to be $125 and the value of the forward contract is $20, the arbitrage profit that you can make today by trading one forward contract and other securities is?A speculator enters a futures contract for September delivery (September 19) of £62,500 on February 2. The futures exchange rate is $1.650 per pound. He believes that the spot rate for pounds on September 19 will be $1.700 per pound. The margin requirement is 2 percent. (a) If his expectations are correct, what would be his rate of return on the investment? (b) If the spot rate for pounds on September 19 is 5 percent lower than the futures exchange rate, how much would he lose on the futures speculation? (c) If there is a 65 percent chance that the spot rate for pounds will increase to $1.700 by September 19, would you speculate in the futures market?Dudley Savings Bank wishes to take a position in Treasury bond futures contracts, which currently have a quote of 108 - 100. Dudley Savings thinks interest rates will go down over the period of investment. The face value of the bond underlying the futures contract is $100,000. a. Should the bank go long or short on the futures contracts? b. Given your answer to part (a), calculate the net profit to Dudley Savings Bank if the price of the futures contracts increases to 108 - 240. (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 2 decimal places. (e.g., 32.16)) c. Given your answer to part (a), calculate the net profit to Dudley Savings Bank if the price of the futures contracts decreases to 107 - 300. (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 2 decimal places. (e.g., 32.16)) a b. с The futures contracts Net profit Net profit Long с