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FIU FIN4486 Homework 2 Chapters 3 and 5

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Question;?;An investor receives $1084.0 in 2.0 weeks for an;initial investment of $1035.0. What is annual percentage return with;continuous compounding?;Selected Answer;Answers;a.;10.023;b.;232.90;c.;120.27;d.;123.09;?;Question 2;10 out of 10 points;Suppose you enter into a 4.0 month forward;contract on one ounce of silver when the spot price of silver is $9.0 per;ounce and the risk-free interest rate is 6.5 percent continuously compounded.;What is the forward price?;Selected Answer;Answers;a.;9.6044;b.;9.1971;c.;8.8071;d.;11.672;?;Question 3;10 out of 10 points;Pixar stock is expected to pay a single $1.7;dividend in 2.0 months. Suppose you enter into a 7.0 month forward contract;to buy one share of Pixar stock when the share price is $40.4 per and the;risk-free interest rate is 6.25 percent continuously compounded. What is the;forward price?;Selected Answer;Answers;a.;37.331;b.;40.155;c.;43.645;d.;40.137;?;Question 4;10 out of 10 points;The S&P 500 index has a dividend yield of 4.0;percent. Suppose you enter into a 11.0 month forward contract to buy S&P;500 index. The current value of the index equals $1126.0 and the risk-free;interest rate is 10.0 percent continuously compounded. What is the forward;price?;Selected Answer;Answers;a.;990.38;b.;1280.2;c.;1189.7;d.;1065.7;?;Question 5;10 out of 10 points;The interest rate in Great Britain is 5.0 percent;per year and the interest rate in the USA is 6.0 percent. If the spot;exchange rate is 1.3 dollars per pound, what is the price of a 11 month;forward contract to buy the British pound?;Selected Answer;Answers;a.;1.1753;b.;1.4379;c.;1.3120;d.;1.2881;?;Question 6;10 out of 10 points;Mogul oil company will sell 7000 barrels of oil;in 3 months. Suppose Mogul hedges the risk by selling futures on 7000 barrels;of oil. The current oil futures price is $15.6 dollars per barrel. If in 3;months the spot price of oil is $15.0 and the futures price is $15.9 per;barrel, what is Mogul's effective price of oil per barrel?;Selected Answer;Answers;a.;16.5;b.;17.0;c.;14.7;d.;15.3;?;Question 7;10 out of 10 points;Mogul oil company will sell 9000 barrels of oil;in 2 months. Suppose Mogul hedges the risk by selling futures on 7200.0;barrels of oil. The current oil futures price is $21.1 dollars per barrel. If;in 2 months the spot price of oil is $20.5 and the futures price is $21.8 per;barrel, what is Mogul's gain on the futures transaction and effective price;per barrel?;Selected Answer;Answers;a.;-5040.0 and 21.06;b.;5040.0 and 19.94;c.;5040.0 and 21.06;d.;-5040.0 and 19.94;?;Question 8;0 out of 10 points;Generous Dynamics maintains an inventory of 4000;ounces of gold. The company is interested in protecting the inventory against;daily price changes. The correlation of the daily change in the spot and;futures price is 0.4, the standard deviation of the daily spot price change;is 26 percent, and the standard deviation of the daily change in the futures;price is 14 percent. Futures contract size is 1000 ounces. How many contracts;should GD buy or sell to hedge its inventory?;Selected Answer;Answers;a.;Sell 0.86154;b.;Buy 2.9714;c.;Sell 2.9714;d.;Buy 0.86154;?;Question 9;0 out of 10 points;Modern Portfolio Managers (MPM) hold a 19 million;dollar portfolio of stocks with a beta of 1.25 measured with respect to the;S&P 500 index. The current value of the index is 955 and the current;value of a futures contract on the index is 1018.0. The multiplier on the;futures equals $250. If MPM wishes to hedge the systematic risk in its;portfolio, how many contracts must it buy or sell?;Selected Answer;Answers;a.;Buy 93.317;b.;Buy 99.476;c.;Sell 99.476;d.;Sell 93.317;?;Question 10;10 out of 10 points;Modern Portfolio Managers (MPM) hold a 7 million;dollar portfolio of stocks with a beta of 0.85 measured with respect to the;S&P 500 index. The current value of the index is 1039 and the current;value of a futures contract on the index is 1084.7. The multiplier on the;futures equals $250. If MPM wishes to increase its systematic risk in its;portfolio to 1.65, how many contracts must it buy or sell?;Selected Answer;Answers;a.;Buy 5389.8;b.;Sell 20.651;c.;Sell 21.559;d.;Buy 20.651;Friday;April 18, 201

 

Paper#49897 | Written in 18-Jul-2015

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