A financial intermediary's balance sheet is such that DA= 5, D₁ = 3. This FI has $300 million in assets and net worth (equity) of $50 million. The FI has access to futures on 6-month commercial paper. This paper is trading at $0.94 per dollar and the futures contract covers $1,000,000 face value. How many contracts does the FI require if it uses the commercial paper futures contract to fully hedge its core exposure? (Note: Commercial paper is a zero-coupon asset.) Round your final answer to the nearest whole number. The Fl needs to contracts.
A financial intermediary's balance sheet is such that DA= 5, D₁ = 3. This FI has $300 million in assets and net worth (equity) of $50 million. The FI has access to futures on 6-month commercial paper. This paper is trading at $0.94 per dollar and the futures contract covers $1,000,000 face value. How many contracts does the FI require if it uses the commercial paper futures contract to fully hedge its core exposure? (Note: Commercial paper is a zero-coupon asset.) Round your final answer to the nearest whole number. The Fl needs to contracts.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:A financial intermediary's balance sheet is
such that DA= 5, D₁ = 3. This FI has $300
million in assets and net worth (equity) of
$50 million.
The FI has access to futures on 6-month
commercial paper. This paper is trading at
$0.94 per dollar and the futures contract
covers $1,000,000 face value. How many
contracts does the FI require if it uses the
commercial paper futures contract to fully
hedge its core exposure? (Note: Commercial
paper is a zero-coupon asset.)
Round your final answer to the nearest whole
number.
The Fl needs to
contracts.
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