A futures contract will mature in one time step. The current return over one time-step is R = 1.01 and the underlying asset of the future contract is currently worth $27 and has up factor u = 1.1 and down factor d = 0.9. The margin account for the short side of this futures contract currently holds $16. How much will the margin account hold when the futures contract matures if the underlying asset increases in value?
Q: The Elberta Fruit Farm of Ontario is considering buying a cherry-picking machine to replace the…
A: Here,Salary of Part Time Workers $ 190,000.00Cost of Cherry pricker $ 510,000.00Life of…
Q: The following table summarizes prices of various default-free zero-coupon bonds (expressed as a…
A: A bond’s yield to maturity is the total return that the buyer receives from the time bond is…
Q: Calculating Returns Suppose you bought a 6 percent coupon bond one year ago for $1,040. The bond…
A: Bonds are the instruments that represent the debt of an organization and are a type of debt…
Q: Comforting Mother manufactures baby furniture, clothing, strollers, and accessories. In the current…
A: Capital budgeting decisions involve the process of evaluating and selecting long-term investment…
Q: Date March 2 8 13 19 22 28 31 Transaction Description Balarke Cheque 263 Cheque 264 Deposit Cheque…
A: Limit on your line of credit - $1,000.00Interest rate on positive balances - 1.7% p.a.Interest rate…
Q: Discuss the requirements for the establishment of the commodities and derivatives markets. In your…
A: Establishing commodities and derivatives markets involves several key requirements. These markets…
Q: Which $1,000 bond has the higher yield to maturity, a 20-year bond selling for $800 with a current…
A: First we need to calculate annual coupon payment by using current yield formula.Annual coupon =Bond…
Q: Gene McDonald's bank granted him a single-payment loan of $5,000 for 90 days at 9% ordinary…
A: A fundamental method of calculating interest in finance is called simple interest. It is calculated…
Q: ABC Company sold $10,000,000 of 30 year, 4% bands at a price to yield 2.5%. The bonds pay interest…
A: Bonds are debt instruments issued by companies. The company which issues the bonds pays periodic…
Q: A company just paid 2.50 dividend and expects it to grow 7% for the next 4 years, after 4 years, the…
A: Stock value will be the sum of present value of all future dividends and present value of terminal…
Q: An asset has an average return of 11.15 percent and a standard deviation of 22.89 percent. What is…
A: Maximum rate of return depends on the probability of event and standard deviation and mean expected…
Q: A property was purchased for $5000.00 down and payments of $2500 at the end of every six month for…
A: Cost of financing is that amount which is paid by the borrower for financing the assets. It is that…
Q: You are ready to buy a house, and you have $30,000 for a down payment and closing costs. Closing…
A: Mortgage loans are paid by equal and fixed monthly payment that carry the payment of interest and…
Q: Emmett Corporation has issued a $1,000 face value zero-coupon bond. Which of the following values is…
A: Zero coupon bonds are those bonds on which no coupons are paid in future. These are issued at…
Q: The value of the existing forward contract expiring in three months will be closest to:
A: We can determine the value of the forward contract today by following the steps below:Determine the…
Q: When it was issued, the price of the bond was $ nearest cent.) (Round to the
A: Price of the bond is the PV of all future coupons and par value discounted at the YTM.Par value of…
Q: Brown Office Supplies recently reported $4422 in Net Income. It had $9,000 of bonds outstanding that…
A: EBIT is the earning before interest and tax. It can be calculated by using equation below.
Q: Bell Brothers has $3,000,000 in sales. Its fixed costs are estimated to be $200,000, and its…
A: EPS is also known as Earnings per share. It is the part of profit which is given to the shareholders…
Q: Deprey, Incorporated, had equity of $220,000 at the beginning of the year. At the end the year, the…
A: When the average value of equity is measured, and the net income is divided by it, the resulting…
Q: Blue Skies Bank of Florida issues a three-month (90-day) negotiable CD in the amount of $20 million…
A: CD is certificate of deposit that have interest rate specified on that and will receive amount on…
Q: оо Paul makes $75,000. 0% on income from $0 - $12,000 10% on income from $12,000 - $24,000 25% on…
A: Slab RateIncomeTax rateTax Amount$ 0 - $ 12000120000%0$ 12000 - $ 240001200010%1200$ 24000 - $…
Q: back to Year 3.) Round your answer to two decimal places. Enter your answer in millions. For…
A: We can determine the horizon value using the formula below:The value of the firm is the PV of all…
Q: You find the following corporate bond quotes. To calculate the number of years until maturity,…
A: Yield to maturity is the total return an investor has earned by holding the bond until its maturity.…
Q: Using LCM, the present worth of DDM is $. Include a negative gn if necessary. ( NSWER: $ Using LCM,…
A: The question is based on the concept of capital budgeting for mutually exclusive projects. The least…
Q: is expected to general after-tax interest expense next year. The company is expected to reinvest 20%…
A: The current value of a future sum of money or stream of cash flows, given a specified rate of…
Q: The Costaguana stock market provided a rate of return of 93%. The inflation rate in Costaguana…
A: The real rate of return is the net return on an investment after adjusting for inflation. It…
Q: ynovec Corp. is experiencing rapid growth. Dividends are expected to grow at 26 percent per year…
A: Intrinsic value of stock is the present value of dividends and present value of terminal value of…
Q: 32. Ellen purchased a life annuity with a 10-year period certain and lived for 30 years. If Ellen's…
A: Annuities are financial products typically offered by insurance companies. They involve a contract…
Q: Two people save money in a tax-deferred Individual Retirement Account that earns 8% annually. Person…
A: We need to use future value of ordinary annuity formula to calculate amount saved at age 65. The…
Q: CoffeeStop primarily sells coffee. It recently introduced a premium coffee-flavored liquor (BF…
A: Weighted average overall cost of capital of the firm under which the cost related to all sources of…
Q: What is the value today of $1,400 per year, at a discount rate of 10 percent, if the first payment…
A: First, we calculate the present value in year 5 of the annuity and then once again calculate the…
Q: In your own understanding, can you utilize credit cards as a financial leverage in your own…
A: A credit card is a financial tool that allows individuals to borrow funds from a financial…
Q: A business has a cost of equity of 9.5 percent and a pretax cost of debt of 5.4 percent. The…
A: The unlevered cost of capital is the rate of return which a company expects to earn on its assets…
Q: Consider historical data showing that the average annual rate of return on the S&P 500 portfolio…
A: T-bill return = 6% The average market return is 8% more than the T-bill return. Therefore,Market…
Q: Pacific Bank pays a 7.00% nominal rate on deposits, with monthly compounding. What effective annual…
A: The effective annual rate (EAR) is calculated using the formula,
Q: Value of the equity
A: The free cash flow represents the cash left to the company after paying for all the operating…
Q: In your internship with Lewis, Lee, & Taylor Inc. you have been asked to forecast the firm's…
A: The additional funds needed (AFN) can be calculated using the formula,The notes payable are not…
Q: Anle Corporation has a current price of $16, is expected to pay a dividend of $1 in one year, and…
A: Expected dividend yield is calculated below:Expected dividend yield = Dividend/ Current stock price…
Q: 4. Consider a $1,000 par value bond issued by ACEN with a maturity date of 2045 and a stated coupon…
A: Bond valuation entails determining the present value of a bond's future cash flows, which include…
Q: Required information [The following information applies to the questions displayed below.] A pension…
A: The minimum variance portfolio refers to a mix of assets intending to minimize risk for the…
Q: mport Industries has 7,000 perpetual bonds outstanding with a face value of $2,000 each. The bonds…
A: PV of tax shield from perpetual debt is calculated using the formula below:- PV of tax shield from…
Q: 2. Freilyn Angob, a Filipina working in the UAE, has won in an Emirates Lotto Draw where she will…
A: The future value of an investment forecasts the expected value of an investment at a given future…
Q: Earnings per common share of ABC Industries for the current year are expected to be $2.8 and to grow…
A: The DDM refers to the model that considers the dividends paid by the company as the best indicators…
Q: The volatility of the market portfolio is 10% and it has an expected return of 8%. The risk-free…
A: Risk and return are fundamental concepts in finance where risk refers to the uncertainty or…
Q: 3. Curtis invests $300,000 in a Torrance School District bonds 5% interest. Alternatively, Curtis…
A: After-tax rate of return refers to the net return earned on an investment after accounting for…
Q: You just closed on a $1,041,051 home with a 30 year mortgage and an APR of 6.77 percent with monthly…
A: We usually take loan to buy a house. This is because we are not able to buy a house on an upfront…
Q: Atlantic Northern Inc. just reported a net income of $11,000,000, and its current stock price is…
A: 1. P/E ratio = whereMPS = Market price per shareEPS = earnings per share2. market-to-book (M/B)…
Q: Ruth just graduated from college. Since she is starting her own business, it's time to upgrade from…
A: Payback period is a financial metric used to determine how long it takes to recover the initial…
Q: Answer is complete and correct. $ 1,329.34 $ 1,328.75 a. Asked price b. Bid price
A: Asked price of the bond is the PV of all future coupons and par value discounted at the asked yield.…
Q: American Labs provides lab testing services for a variety of clients, mostly doctors’ offices and…
A: Capital budgeting is a financial process used by businesses to evaluate and select investment…
A futures contract will mature in one time step. The current return over one time-step is R = 1.01 and the underlying asset of the future contract is currently worth $27 and has up factor u = 1.1 and down factor d = 0.9. The margin account for the short side of this futures contract currently holds $16. How much will the margin account hold when the futures contract matures if the underlying asset increases in value?
Step by step
Solved in 3 steps
- Consider a 6-month futures contract on a financial asset with dividend yield q=3.96% per year. Risk free rate is 10% per year. Current value of an asset is S0=$25. What should be the 6-month futures price on this asset, if there is no convenience yield and storage costs?Consider a hypothetical futures contract where the current price is $ 212. The initial margin requirement is $ 10 and the maintenance margin requirement is $ 8. You enter into long 20 contracts and meet all margin requirements, but do not withdraw any excess margin. B. Complete the table below and explain all deposited funds. Suppose the contract was purchased at the settlement price of that day, so there is no gain or loss at current market prices on the day of purchase. C. What is your total profit or loss by the end of Day 6?If the initial speculative margin of a futures contract is $2,000, the maintenance margin is $1,800 and your trading account balance has increased to $2,300, how much must you deposit to comply with your margin requirement?
- Suppose that the current spot price of corn is $720 per bushel. The one year risk-free rate is 6% per annum. The futures price for delivery of one bushel of corn in one year’s time is $792 per bushel. Assume that net costs (storage costs minus convenience yield) are $15 per bushel (over the next one year). Is the futures contract correctly priced? If not, what is the theoretically correct price for the futures contract and how could you take advantage of any mispricing? Please show full steps and explain.Assume that the price of a forward contract is 127.87. The European options on the forward contract has an exercise price $150, expiring in 60 days. 3.75% is the continuously compounded risk-free rate, and volatility is 0.33. Calculate the underlying asset's price. Using the Black-Scholes-Merton model, determine the price of a call option on the underlying asset.Assume that the price of a forward contract is 127.87. The European options on the forward contract has an exercise price $150, expiring in 60 days. 3.75% is the continuously compounded risk-free rate, and volatility is 0.33. A. Using the Black model, calculate the price of a call option on a forward contract. B. Calculate the underlying asset's price. Using the Black-Scholes-Merton model, determine the price of a call option on the underlying asset. Should this pricing be any different from the one calculated in letter A? Explain your answer. C. Using the Black model, calculate the price of a put option on a forward contract. D. Using the Black-Scholes-Merton model, compute the price of a put option on the underlying asset. Should this pricing be any different from the one calculated in letter C? Explain your answer.
- Assume that the price of a forward contract is 127.87. The European options on the forward contract has an exercise price $150, expiring in 60 days. 3.75% is the continuously compounded risk-free rate, and volatility is 0.33.A. Using the Black model, calculate the price of a call option on a forward contract.B. Calculate the underlying asset's price. Using the Black-Scholes-Merton model, determine the price of a call option on the underlying asset. Should this pricing be any different from the one calculated in letter A? Explain your answer.C. Using the Black model, calculate the price of a put option on a forward contract.D. Using the Black-Scholes-Merton model, compute the price of a put option on the underlying asset. Should this pricing be any different from the one calculated in letter C? Explain your answer.A trader takes a view that March KLSE CI futures which are currently trading at 1188.60 are about to enter a downtrend. Should the trader go long or short futures. Assuming the trader maintains their original position until expiry and the cash settlement price is 1185.40, what will be the profit or loss? The contract size is RM50 per contract.3. Suppose a financial asset, ABC, is the underlying asset for a futures contractwith settlement of 6 months from now. You know the following about this financial asset and futures contract in the cash market ABC is selling for $120; ABC pays $18 per year in two semiannual payments of $9, and the next semiannual payment is due exactly 6 months from now; and the current 6-month interest rate at which funds can be loaned or borrowed is 6%. a) What is the theoretical (or equilibrium ) futures price? b) Suppose that ABC pays an interest quarterly instead of semiannually, What would be the theoretical futures price for 3 months settlement? c) Suppose that the borrowing rate is 8% and the 6-month lending rate is 6%, What is the boundary for the theoretical futures price? SHOW YOUR SOLUTIONS, PLEASE DONT USE MS EXCEL
- 6.Assume we have the following information: Spot price : 1146.00 Actual futures price : 1192.50 Theoretical futures price : 1160.00 Maturity : 3 months a. Is the futures fairly priced? Suppose an arbitrageur wish to take advantage of this opportunity. He has RM10,000,000.00 which he can fund at the current risk-free rate of 5%. b. What should he do? c. How many contracts should be shorted or bought? d. Assume that the arbitrageur maintains this position until contract expiry at which time futures and cash prices have converged to 1165. How much profit would he makes?Consider a hypothetical futures contract where the current price is $ 212. The initial margin requirement is $ 10 and the maintenance margin requirement is $ 8. You enter into long 20 contracts and meet all margin requirements, but do not take out excess margin. When can there be a margin call?1. Suppose a financial asset, ABC, is the underlying asset for a futures contract with settlement of 6 months from now. You know the following about this financial asset and futures contract in the cash market ABC is selling for $80; ABC pays $8 per year in two semiannual payments of $4, and the next semiannual payment is due exactly 6 months from now; and the current 6month interest rate at which funds can be loaned or borrowed is 6%. What action would you take if the futures price is $83? What action would you take if the futures price is $76?