Assume you are a corn farmer, and you want to lock in a price for part of your upcoming harvest. You see that the December futures contracts are currently trading at $7.10/bu, and you anticipate basis to be 5-0.05/ba. What is your anticipated hedge price?
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- Suppose you work as a broker in an investment company, and there is an expectation that the market interest rate will be 0.031. based on this expectation you are required to calculate the market price for the following CD; Issue date: 1 January 2021 Maturity date:10 May 2021. The face value OMR 10000. Interest on CD: 5 percent.Assume that you are given the following historical returns for the Market and Security J. Also assume that the expected risk-free rate for the coming year is 4.0 percent, while the expected market risk premium is 15.0 percent. Given this information, determine the required rate of return for Security J for the coming year, using CAPM. Year 1 2 O21.20% 3 4 5 6 O22.34% O 23.49% O24.63% O24.10% Market 10.00% 12.00% 16.00% 14.00% 12.00% 10.00% Security J 12.00% 14.00% 18.00% 22.00% 18.00% 14.00%1)You bought a T-bill a few days ago. Now, you want to sell it. The price quotation for this T- Bill is below. Bid Price Ask Price Days to Maturity 94.26 94.96 110 days Calculate the simple and compounded yield of this T-bill when you sell it? Explain briefly the relationship between Bill prices and yields.
- This question will compare two different arbitrage situations. Recall that arbitrage should equalize rates of return. We want to explore what this implies about equalizing prices. In the first situation, two assets, A and B, will each make a single guaranteed payment of $100 in 1 year. But asset A has a current price of $80 while asset B has a current price of $90.a. Which asset has the higher expected rate of return at current prices? Given their rates of return, which asset should investors be buying and which asset should they be selling?b. Assume that arbitrage continues until A and B have the same expected rate of return. When arbitrage ceases, will A and B have the same price?Next, consider another pair of assets, C and D. Asset C will make a single payment of $150 in one year while D will make a single payment of $200 in one year. Assume that the current price of C is $120 and that the current price of D is $180.c. Which asset has the higher expected rate of return at current…Suppose you work as a broker in an investment company, and there is an expectation that the market interest rate will be 0.029. based on this expectation you are required to calculate the market price for the following CD;Issue date: 1 January 2021 Maturity date:10 May 2021. The face value OMR 10000. Interest on CD: 5 percent. Select one: a. 15942.02 b. 15574.10 c. 15677.97 d. All the given choices are not correct e. 15572.50Assume that K=61, St =65, t = 0.25 (i.e. time to expiry is 3 months), and the risk-free rate is 0.04. The current price of the put option is p = 4. If the price of the call option is 7.17, describe the arbitrage that would be possible, and calculate the profit that would result.
- 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?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.
- 1. An investeor buys a ratio spread of 1-year European calls. He buys 1 call option with strike price 40 and sell 2 call options with strike price 50. Option prices are (Strike price, Call option premium) = (40, 10), (50, 5) (a) Draw its profit plot. Formulas and explains regarding your plot are required. (b) 45, 55, 65. Determine the investor's profit if the end price of the underlying stock isA 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?Blades is considering using either current spot rates or available forward rates to forecast the future value of the baht. Available forward rates currently exhibit a large discount. Do you think the spot or the forward rate will yield a better market-based forecast? Why?