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Financial deratives and growth rates

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Need Homework help with complete step by step solution. Reference book Derivatives Markets- Robert L. Mc donald;Attachment Preview;der4.pdf Download Attachment;MFE Financial Derivatives Homework 4 (Chapters 7 and 8);Multiple Choice;Identify the choice that best completes the statement or answers the question.;1 The price of a 3-year zero coupon government bond is 85.16. The price of a similar 4-year discount bond;2;3;4;5;is 79.81. What is the 1-year implied forward rate from year 3 to year 4?;A) 4.6%;C) 5.8%;B) 5.5%;D) 6.7%;The prices of 1, 2, 3, and 4-year zero coupon government bonds are 95.42, 90.36, 85.16, and 79.81;respectively. What is the implied 2-year forward rate between years 2 and 4?;A) 4.8%;C) 5.5%;B) 5.2%;D) 6.4%;The prices of 1, 2, 3, and 4-year zero coupon government bonds are 95.42, 90.36, 85.16, and 79.81;respectively. What is the par coupon on a 4-year coupon bond selling at par?;A) 5.02%;C) 5.81%;B) 5.43%;D) 5.76%;A 4-year bond with a price of 100.696 exists. The duration on the bond is 3.674. If the yield rises from;5.8% to 6.2%, what is the new bond price as estimated by the duration?;A) $98.40;C) $100.60;B) $99.23;D) $101.40;A Forward Rate Agreement contains an agreed (6-month) interest rate of 3.1% on a 6-month loan. If;settled at the time of borrowing, what amount would the borrower pay or receive on a $500,000 loan if;the prevailing 6-month interest rate is 2.9%? The interest rates are not annulized rates.;A) $1,000 payment;C) $972 payment;B) $1,000 receipt;D) $972 receipt;6 Compute the conversion factor on a semi-annual 6.8% coupon bond, which matures in exactly 5;A) 1.037;B) 1.046;years.;C) 1.052;D) 1.068;7 The conversion factor on a deliverable bond is 1.03 and the bond price is 100.50. The observed futures;price is 97.5 and the YTM is 5.8%. What is invoice less market price on the security?;A) +0.075;C) -0.02;B) -0.075;D) +0.02;8 You wish to create a synthetic forward rate agreement in which you would lock in a return between 150;and 310 days. The price of a 150-day zero coupon bond is 0.9823 and the price of 310-day zero coupon;bond is 0.9634. What are the transactions used to create this instrument?;A) Borrow one 150-day bond and invest in (FV)1.02 of the 310-day bonds;B) Borrow two 150-day bonds and invest in (FV) 0.98 of the 310-day bonds;C) Lend one of the 150-day bonds and borrow (FV) 1.02 of the 310-day bonds;D) Lend two of the 150-day bonds and borrow (FV) 0.98 of the 310-day bonds;1;9 The short in a forward rate agreement;A) profits if LIBOR decreases.;B) faces default risk.;C) profits if London Interbank Offered Rate (LIBOR) increases.;D) loses if LIBOR remains stable.;10 30 days ago, J. Klein took a short position in a $10 million (3X6) forward rate agreement (FRA) based on the;London Interbank Offered Rate (LIBOR) and priced at 5%. The current LIBOR curve is;30-day = 4.8%;60-day = 5.0%;90-day = 5.1%;120-day = 5.2%;150-day = 5.4%;The current value of the FRA, to the short, is closest to;A) -$15,495.;C) -$15,280.;B) -$15,154.;D) -$15,324.;Jennifer Carson, CFA, has been hired to review data on a series of forward contracts for a major client. The client;has asked for an analysis of a contract with each of the following characteristics;1. A forward contract on a U.S. Treasury bond;2. A forward rate agreement (FRA);3. A forward contract on a currency;Information related to a forward contract on a U.S. Treasury bond: The Treasury bond carries a 6% coupon and;has a current spot price of $1,071.77 (including accrued interest). A coupon has just been paid and the next coupon;is expected in 183 days. The annual risk-free rate is 5%. The forward contract will mature in 195 days.;Information related to a forward rate agreement: The relevant contract is a 3 9 FRA. The current annualized;90-day money market rate is 3.5% and the 270-day rate is 4.5%. Based on the best available forecast, the 180- day;rate at the expiration of the contract is expected to be 4.2%.;Information related to a forward contract on a currency: The risk-free rate in the U.S. is 5% and 4% in;Switzerland. The current spot exchange rate is $0.8611 per Swiss France (SFr). The forward contract will mature;in 200 days.;11 Based on the information given, what initial price should Carson recommend for a forward contract on the;Treasury bond?;A) $1,073.54.;C) $1,035.12.;B) $1,070.02.;D) $1,048.23;12 Based on the information given, what initial price should Carson recommend for the 3 9 FRA?;A) 5.66%.;C) 4.96%.;B) 4.66%.;D) 5.16%.;13 Assume oat spot prices over the next 3 years are $2.20, $2.35, and $2.28, respectively. The original swap;price was $2.30 per bushel. If cash settlement occurs, what transaction will the short side make in year 2;on a 5,000-bushel swap agreement?;A) $250 payment;C) $100 payment;B) $250 receipt;D) $100 receipt;2;14 IBM and AT&T decide to swap $1 million loans. IBM currently pays 9.0% fixed and AT&T pays 8.5%;on a LIBOR + 0.5% loan. What is the net cash flow for IBM if they swap their fixed loan for a LIBOR +;0.5% loan and LIBOR drops to 7.5%?;A) -$5,000;C) -$90,000;B) $5,000;D) $10,000;15 Consider a U.S. investor who has a portfolio of Australian government bonds that are denominated in Australian;dollars. Why would the investor wish to enter into a swap contract? As the;A) Australian dollar increases in value, the interest payments from the Australian bonds;translate into fewer U.S. dollars.;B) Australian dollar decreases in value, the interest payments from the Australian bonds;translate into fewer U.S. dollars.;C) Australian interest rate decreases, the value of the Australian bonds decreases.;D) U.S. interest rate decreases relative to the Australian interest rate, the value of the;Australian bonds decreases.;16 Consider a fixed-rate semiannual-pay equity swap where the equity payments are the total return on a $1 million;portfolio and the following information;180-day LIBOR is 2.3%;360-day LIBOR is 2.5%;Dividend yield on the portfolio = 0.8%;What is the fixed rate on the swap?;A) 2.4197%.;C) 2.1387%.;B) 2.4834%.;D) 2.3832%.;17 A swap spread depends primarily on the;A) shape of the reference rate yield curve.;B) credit of the parties involved in the swap.;C) general level of credit risk in the overall economy.;D) monetary policies conducted by different central banks.;18 A manager of a $2 million dollar fixed-income portfolio with a duration of 3 wants to increase the duration to 4.;The manager chooses a swap with a net duration of 2. The manager should become a;A) pay-floating counterparty in the swap with a notional principal of $1 million.;B) pay-floating counterparty in the swap with a notional principal of $2 million.;C) receive-floating counterparty in the swap with a notional principal of $1 million.;D) receive-floating counterparty in the swap with a notional principal of $2 million.;19 The current U.S. dollar ($) to Canadian dollar (C$) exchange rate is 0.82 (USD/C$). In a U$D 1.5 million currency;swap, the party that is entering the swap to hedge existing exposure to C$-denominated fixed-rate liability will;A) receive floating in C$.;B) pay floating in C$.;C) pay C$1,829,268 at the beginning of the swap.;D) pay U$D1,500,000 at the beginning of the swap.;20 A U.S. firm that wishes to convert its annual cash flows of 6 million each to US$ upon receipt. The exchange rate;is currently 0.8/$, and the swap rates in the U.S. and Europe are 3.6% and 3.8% respectively. Appropriately using;a fixed-for- fixed currency swap that does not exchange principal, what would be the annual dollar cash flow to the;firm?;A) $7,105,263.;C) $4,547,368.;B) $7,500,000.;D) 216,000.;3;21 A firm has most of its liabilities in the form of floating-rate notes with a maturity of two years and a quarterly;reset. The firm is not concerned with interest rate movements over the next four quarters but is concerned with;potential movements after that. Which of the following strategies will allow the firm to hedge the expected change;in interest rates?;A) Enter into a 2-year, quarterly pay-fixed, receive-floating swap.;B) Go short a payers swaption with a 2-year maturity.;C) Go long a payers swaption with a 1-year maturity.;D) Go long a receivers swaption with a 1-year maturity.;22 Which of the following statements related to credit risk during the life of a swap is most accurate;A) Credit risk is greatest at the beginning of the swap term because there are significant;payments yet to be made over the remaining term of the swap.;B) Credit risk is greatest in the middle of the swap term when both the creditworthiness of;the counterparty may have deteriorated since swap initiation and there are significant;payments yet to be made over the remaining term of the swap.;C) Credit risk is greatest at the end of the swap term because creditworthiness of the;counterparty is likely to have deteriorated since swap initiation.;D) Credit risk is greatest at a point of the swap term where the market swap rate has changed;significantly and both sides disagree on how to terminate it.;23 A $10 million 1-year semi-annual-pay LIBOR-based interest-rate swap was initiated 90 days ago when the;180-day LIBOR was 4.2%. The fixed rate on the swap is 4.5%, current 90-day LIBOR is 4.8% and 270-day;LIBOR is 4.96%. The value of the swap to the fixed-rate payer is closest to;A) $22,975.;C) $8,329.;B) $37,973.;D) $8,273.;24 Consider a $80 million semiannual-pay floating-rate equity swap initiated when the equity index is 1428 and;180-day LIBOR is 4.2%. After 90 days the index is at 1476, 90-day LIBOR is 4.5% and 270-day LIBOR is 4.7%.;What is the value of the swap to the floating-rate payer?;A) -$1,917,600.;C) $1,799,088.;B) $1,917,600.;D) $1,799,088.;25 Consider a 3-year quarterly-pay bond to be issued in 90 days with a 6% coupon. A 90-day put option on this bond;with an exercise price rate of 6%, has a payoff equal to that of a;A) receiver swap.;C) receiver swaption.;B) payer swaption.;D) payer swap.;4;View Full Attachment;Additional Requirements;Min Pages: 4;Level of Detail: Show all work;Other Requirements: Need homework help with complete step by step solution. Reference Book- Derivatives Markets by Robert L. McDonald

 

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