Homework Answers
| Formula to calculate december future price | |||||||
| Future Price (Dec) | Future price (June)*((1+r)^n) | ||||||
| Calculation of future price for December is shown below | |||||||
| Future Price (Dec) | 1246.30*(1.03^(6/12)) | ||||||
| Future Price (Dec) | 1246.30*(1.03^(1/2)) | ||||||
| Future Price (Dec) | 1246.30*1.014889 | ||||||
| Future Price (Dec) | $1,264.86 | ||||||
| The future price of December calculated in a differs from future price available of $1,251 and thus there is arbritrage opportunity available. | |||||||
| Yes, arbitrage opportunity is available. | |||||||
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It is now January. The current annual interest rate is 3%. The June futures price for gold is $1,246.30, while th...
6. value 10.00 points It is now January. The current interest rate is 6.0%. The June...
6. value 10.00 points It is now January. The current interest rate is 6.0%. The June futures price for gold is $1648.70, while the December futures price is $1.654. 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. Round your answer to 2 decimal place. Price for December futures b. Is there an arbitrage...
It is now December 2017. The current interest rate is 2%. The May 2018 futures price...
It is now December 2017. The current interest rate is 2%. The May 2018 futures price for gold is $1,500, whereas the December 2018 futures price is $1510. Is here an arbitrage possibility here? If so, how would you exploit it?
PROBLEM 1. Spot price of gold is $1,407-40/oz. The total interest rate on three-month loans and...
PROBLEM 1. Spot price of gold is $1,407-40/oz. The total interest rate on three-month loans and deposits is 0.75% (i.e. $100 borrowed today would require a payment of $100.75 in three months). a. Assuming no storage cost and no transaction cost, determine the no-arbitrage price for a gold futures contract maturing three months from now. b. Suppose that the three-month gold futures contract is actually traded at $1,420.20/oz. Determine if an arbitrage opportunity is present. If so, describe a trading...
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...
] Question 4 (10 marks) Suppose the spot price of gold is $1,500 per troy ounce...
]
Question 4 (10 marks) Suppose the spot price of gold is $1,500 per troy ounce today. The futures price of gold for delivery in 1 year is $1,530 per troy ounce. Assume that the one-year gold futures contract is correctly priced and there are no storage and insurance costs. Also assume that the risk-free rate is compounded annually and you can borrow and lend money at the risk-free rate. a). What is the theoretical parity price of a two-year...
On January 21, gold is selling for $1387.25 per ounce in the spot market while the...
On January 21, gold is selling for $1387.25 per ounce in the spot market while the futures price for 3-month (90 day) April gold is $1402.50 per ounce on a 100 ounce contract. If the risk-free rate is 2.25%, determine what profit an investor will realize if he/she uses arbitrage (cash-and-carry or reverse cash-and-carry) to exploit the situation. (Assume the investor uses 2 gold futures contracts, and that no carrying costs are involved for storage or insurance.) Show all work....
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...
Problem 2.5.6. (Piecewise constant dividend yield) It is now January 1, 3018. You are given: (i)...
Problem 2.5.6. (Piecewise constant dividend yield) It is now January 1, 3018. You are given: (i) The current price of the stock is 1,000. (ii) The stock pays dividends continuously at a rate proportional to its price. The dividend yield changes throughout the year. In March, June, September, and December, the dividend yield is 3%. In other months, the dividend yield is 2% (iii) The continuously compounded risk-free interest rate is 9%. Calculate the price of a 1-year forward contract....
Hartford Research issues bonds dated January 1 that pay interest semiannually on June 30 and December 31. The bonds...
Hartford Research issues bonds dated January 1 that pay interest semiannually on June 30 and December 31. The bonds have a $21,000 par value and an annual contract rate of 10%, and they mature in 10 years. (Table B.1. Table B.2. Table B.3, and Table 8.4) (Use appropriate factor(s) from the tables provided. Round all table values to 4 decimal places, and use the rounded table values in calculations.) Required: Consider each separate situation. 1. The market rate at the...
Hartford Research issues bonds dated January 1 that pay interest semiannually on June 30 and December...
Hartford Research issues bonds dated January 1 that pay interest semiannually on June 30 and December 31. The bonds have a $31,000 par value and an annual contract rate of 12%, and they mature in 10 years. (Table B.1, Table B.2, Table B.3, and Table B.4) (Use appropriate factor(s) from the tables provided. Round all table values to 4 decimal places, and use the rounded table values in calculations.) Required: Consider each separate situation. 1. The market rate at the...
6. value 10.00 points It is now January. The current interest rate is 6.0%. The June futures price for gold is $1648.70, while the December futures price is $1.654. 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. Round your answer to 2 decimal place. Price for December futures b. Is there an arbitrage...
PROBLEM 1. Spot price of gold is $1,407-40/oz. The total interest rate on three-month loans and deposits is 0.75% (i.e. $100 borrowed today would require a payment of $100.75 in three months). a. Assuming no storage cost and no transaction cost, determine the no-arbitrage price for a gold futures contract maturing three months from now. b. Suppose that the three-month gold futures contract is actually traded at $1,420.20/oz. Determine if an arbitrage opportunity is present. If so, describe a trading...
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...
]
Question 4 (10 marks) Suppose the spot price of gold is $1,500 per troy ounce today. The futures price of gold for delivery in 1 year is $1,530 per troy ounce. Assume that the one-year gold futures contract is correctly priced and there are no storage and insurance costs. Also assume that the risk-free rate is compounded annually and you can borrow and lend money at the risk-free rate. a). What is the theoretical parity price of a two-year...
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...
Problem 2.5.6. (Piecewise constant dividend yield) It is now January 1, 3018. You are given: (i) The current price of the stock is 1,000. (ii) The stock pays dividends continuously at a rate proportional to its price. The dividend yield changes throughout the year. In March, June, September, and December, the dividend yield is 3%. In other months, the dividend yield is 2% (iii) The continuously compounded risk-free interest rate is 9%. Calculate the price of a 1-year forward contract....
Hartford Research issues bonds dated January 1 that pay interest semiannually on June 30 and December 31. The bonds have a $21,000 par value and an annual contract rate of 10%, and they mature in 10 years. (Table B.1. Table B.2. Table B.3, and Table 8.4) (Use appropriate factor(s) from the tables provided. Round all table values to 4 decimal places, and use the rounded table values in calculations.) Required: Consider each separate situation. 1. The market rate at the...
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