For a futures contract on an asset with no expected cash flows over the life of...
For a futures contract on an asset with no expected cash flows over the life of the contract, there should be:
| A. |
negative correlation between the futures price and both interest rates and the spot rate. |
|
| B. |
positive correlation between the futures price and interest rates. |
|
| C. |
zero correlation between the futures prices and both interest rates and the spot price. |
Homework Answers
Option B is correct.
For a futures contract on an asset with no expected cash flows over the life of the contract, there should be a positive correlation between the futures price and interest rates.
Can you please upvote? Thank You :-)
Add Answer to:
For a futures contract on an asset with no expected cash flows
over the life of...
A trader owns 55,000 units of a particular asset and decides to hedge the value of...
A trader owns 55,000 units of a particular asset and decides to hedge the value of her position with futures contracts on another related asset. Each futures contract is on 5,000 units. The spot price of the asset that is owned is $28 and the standard deviation of the change in this price over the life of the hedge is estimated to be $0.43. The futures price of the related asset is $27 and the standard deviation of the change...
1. Which of the following statements is LEAST LIKELY to be CORRECT? A. Price limits on...
1. Which of the following statements is LEAST LIKELY to be CORRECT? A. Price limits on futures contract refer to the imposed limits on the daily price change. B. The clearinghouse, in U.S. futures markets acts as the counterparty in futures contracts and guarantees performance of futures contract obligations. C. If the margin account balance falls below the maintenance margin level, additional deposit is required to bring the balance up to the maintenance margin level. 2. What discount rate should...
A trader owns 55,000 units of a particular asset and wants to hedge the value of...
A trader owns 55,000 units of a particular asset and wants to hedge the value of his position with futures contracts on another related asset. Each futures contract is on 5,000 units. The spot price of the owned asset is $28 and the standard deviation of its price change is $0.45. The futures price of the related asset is $27 and the standard deviation of price change is estimated to be $0.40. The correlation between the spot price of the...
C. T0 d. 114 II. Spot-Futures Parity (L.O3, CFA) A stock index futures contract maturing in...
C. T0 d. 114 II. Spot-Futures Parity (L.O3, CFA) A stock index futures contract maturing in one currently traded price of S1,000. The cash index has a dividend yield of 2 percent an est rate is 5 percent. Spot-futures parity then implies a cash index level of a. $933.33. b. $970.87 c. $1,071 d. $1,029 futures contract matures in one year. The
Problem 26-9 Futures prices Calculate the value of a six-month futures contract on a Treasury bond....
Problem 26-9 Futures prices Calculate the value of a six-month futures contract on a Treasury bond. You have the following information: Six-month interest rate: 11% per year, or 5.40% for six months. Spot price of bond: 91.00. The bond pays a 9% coupon, 4.50% every six months.
4. Sun Board of Trade offers futures contract on Nyakato, Inc. Assume risk free interest rate...
4. Sun Board of Trade offers futures contract on Nyakato, Inc. Assume risk free interest rate is 0.25% per month and Nakato stock sells for $450 per share (a) Find the predicted futures price (on Nyakato) for delivery in 3 months. (5) (b) If the futures price on Nyakato stock in the market is $455.00, is the spot-futures parity relationship violated? If yes, show the strategy and the cash flows at time 0 and at time T (maturity) that can...
Below are prices for futures contract on ABC Company assuming that a $ 3.5 cash dividend...
Below are prices for futures contract on ABC Company assuming that a $ 3.5 cash dividend will be paid in 45 days, a $ 4.0 cash dividend will be paid in 70 days, and a $ 3.5 cash dividend will be paid in 100 days. Its current share price is $146. Days to Maturity Price 30 146.36 60 145.22 90 139.54 (a) (10 Points) Compute the values of each futures contract on ABC company. Assume the risk free rate of...
1. Consider the futures contract to buy/sell December gold for $500 per ounce on the New...
1. Consider the futures contract to buy/sell December gold for $500 per ounce on the New York Commodity Exchange (CMX). The contract size is 100 ounces. The initial margin is S3,000, and the maintenance margin is $1,500. 1.a. Suppose that you enter into a long futures contract to buy December for $500 per ounce on the CMX What change in the futures price will lead to a margin call? If you enter a short futures contract, what futures price will...
7.3 value of the cash flows the asset is expected to produce. For a bond with...
7.3
value of the cash flows the asset is expected to produce. For a bond with fixed annual coupons, its value is equal to the present value of all its annual interest payments and its maturity The value of any financial asset is the present value as shown in the equation below: INT (1+r)^ M (1+ra) Bond's value=Ve=INT + INT. +...+ (1+ra)' (1+ra) INT + M = (1+ra)* (1+ra)N We could use the valuation equation shown above to solve for...
Which of the following can explain a contango? a. futures prices exceed forward prices b. the...
Which of the following can explain a contango? a. futures prices exceed forward prices b. the cost of carry is negative c. when spot prices and futures prices dance around each other over time d. excess current supply causes the spot price to be less than the futures price e. none of the above
C. T0 d. 114 II. Spot-Futures Parity (L.O3, CFA) A stock index futures contract maturing in one currently traded price of S1,000. The cash index has a dividend yield of 2 percent an est rate is 5 percent. Spot-futures parity then implies a cash index level of a. $933.33. b. $970.87 c. $1,071 d. $1,029 futures contract matures in one year. The
4. Sun Board of Trade offers futures contract on Nyakato, Inc. Assume risk free interest rate is 0.25% per month and Nakato stock sells for $450 per share (a) Find the predicted futures price (on Nyakato) for delivery in 3 months. (5) (b) If the futures price on Nyakato stock in the market is $455.00, is the spot-futures parity relationship violated? If yes, show the strategy and the cash flows at time 0 and at time T (maturity) that can...
1. Consider the futures contract to buy/sell December gold for $500 per ounce on the New York Commodity Exchange (CMX). The contract size is 100 ounces. The initial margin is S3,000, and the maintenance margin is $1,500. 1.a. Suppose that you enter into a long futures contract to buy December for $500 per ounce on the CMX What change in the futures price will lead to a margin call? If you enter a short futures contract, what futures price will...
7.3
value of the cash flows the asset is expected to produce. For a bond with fixed annual coupons, its value is equal to the present value of all its annual interest payments and its maturity The value of any financial asset is the present value as shown in the equation below: INT (1+r)^ M (1+ra) Bond's value=Ve=INT + INT. +...+ (1+ra)' (1+ra) INT + M = (1+ra)* (1+ra)N We could use the valuation equation shown above to solve for...
Most questions answered within 3 hours.
-
A sample of 3 is selected from 9 cards. How many permutation is
possible? Show Work.
asked 54 seconds ago -
About the lecture of human resource management, give me the
process and schedule of how the...
asked 1 minute ago -
Identify a commercial data mining software product (e.g., SAS)
and an open-source data mining product (e.g.,...
asked 3 minutes ago -
An investment project provides cash inflows of $770 per year for
11 years.
a. What is...
asked 3 minutes ago -
A fair D10 die is rolled 100 times. What is the probability of
rolling five 1s,...
asked 14 minutes ago -
Other than hydrogen bonding, what is the major interaction that
causes proteins to fold into compact,...
asked 14 minutes ago -
In an RC circuit, the total resistance is 1 k ohm and the
battery voltage is...
asked 20 minutes ago -
CollegePak Company produced and sold 84,000 backpacks during the
year just ended at an average price...
asked 22 minutes ago -
Two fluids sit on top of one another in a tank. The fluid on top
is...
asked 29 minutes ago -
At the end of 2022, Honey Co. has accounts receivable of
$698,000 and an allowance for...
asked 38 minutes ago -
Consider an American put option. Suppose its stock price is $50
and its strike price is...
asked 36 minutes ago -
1. Compare and contrast the different methods used to
characterise a protein in terms of mass...
asked 48 minutes ago