Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
expand_more
expand_more
format_list_bulleted
Question
Sixty futures contracts are used to hedge an exposure to the price of silver. Each futures
contract is on 5,000 ounces of silver. At the time the hedge is closed out, the basis is $0.20
per ounce. What is the effect of the basis on the hedger’s financial position if (a) the trader
is hedging the purchase of silver and (b) the trader is hedging the sale of silver?
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution
Trending nowThis is a popular solution!
Step by stepSolved in 2 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- Suppose the 6-month Mini S&P 500 futures price is 1,345.99, while the cash price is 1,335.81. What is the implied difference between the risk-free interest rate and the dividend yield on the S&P 500? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Implied difference %arrow_forwardThe time from acceptance to maturity on a $1,000,000 banker's acceptance is 120 days. The importer's bank's acceptance commission is 1.75 percent and the market rate for 120-day B/As is 5.75 percent. What amount will the exporter receive if he holds the B/A until maturity? If he discounts the B/A with the importer's bank? Also determine the bond equivalent yield the importer's bank will earn from discounting the B/A with the exporter. If the exporter's opportunity cost of capital is 11 percent, should he discount the B/A or hold it to maturity? (Do not round intermediate calculations. Round "Maturity value" to 2 decimal places. Round "Bond equivalent yield" as a percent rounded to 2 decimal places.) Amount the exporter will receive at maturity Amount the exporter will receive if discounted Bond equivalent yield Should he discount the B/A or hold it to maturity? Discount the B/A %arrow_forwardA particular security's default risk premium is 4 percent. For all securities, the inflation risk premium is 3.65 percent and the real risk- free rate is 2.50 percent. The security's liquidity risk premium is 0.35 percent and maturity risk premium is 0.95 percent. The security has no special covenants. Calculate the security's equilibrium rate of return. (Round your answer to 2 decimal places.) > Answer is complete but not entirely correct. Rate of return 8.65%arrow_forward
- Suppose the quoted futures price for delivery in 1 year is $7.10. The current underlying price is $7 and the continuously compounded interest rate is 5%. The underlying does not pay dividends. How could you make a riskless arbitrage profit? Question 2Answer a. buy futures contracts, short sell the stock and invest in a bank account b. borrow from the bank to buy futures contracts and short sell the stock c. sell futures contracts, borrow and buy the stock d. sell future contacts, short sell the stock and invest in a bank accountarrow_forwardA non-dividend paying asset is current priced at $25 and the risk-free interest rate is 8% per annum. Today, you enter into a six-month futures contract to buy a unit of this asset. Three months from now the underlying price has fallen to $18 (but note that the interest rate has not moved). Which of the answers below is closest to the fall in the futures price? Use discrete discounting. Question 7Answer a. $6.50 b. $5.50 c. $7.50 d. $4.50arrow_forwardToday is January 1. The forward price for contracts maturing on April 1 is $104.4 and on October 1 is $111.6. On April 1, the price of a zero-coupon bond maturing on October 1 is $0.975. Assuming that the underlying interest rate is a continuously compounded interest rate and will not change, the amount of profit that you can make on October 1 by trading one contract each of the near and distant maturity forwards and other securities is: [round to two decimal places]arrow_forward
- 9) This is an exercise about financial futures. Can you please check the picture and answer the question? Only one option is right (A, B, C, or D).arrow_forwardGenerous Dynamics maintains an inventory of 15000 ounces of gold. The company is interested in protecting the inventory against daily price changes. The correlation of the daily change in the spot and futures price is. 55, the standard deviation of the daily spot price change is 20 percent, and the standard deviation of the daily change in the futures price is 37 percent. Futures contract size is 1000 ounces. How many contracts should GD buy or sell to hedge its inventory?arrow_forwardConsider three securities that pay risk free cash flows over the next three years and that have the current market prices shown here Security Price Today (5) Cash Flow in Two Years (5) Cash Flow in Three Years ($) Name 81 82 83 $9268 $84.79 $386 09 Cash Flow in One Year ($) 100 0 0 0 100 0 0 0 500 Calculate the no-arbitrage price, or the price that eliminates any arbitrage opportuntes, of a new secunty 84, that plays risk toe cash flows of $100 in one year and $500 in two years The current no-arbitrage price of Security B4 is: s(round your answer to two decimal places) Karrow_forward
arrow_back_ios
arrow_forward_ios
Recommended textbooks for you
- Essentials Of InvestmentsFinanceISBN:9781260013924Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.Publisher:Mcgraw-hill Education,
- Foundations Of FinanceFinanceISBN:9780134897264Author:KEOWN, Arthur J., Martin, John D., PETTY, J. WilliamPublisher:Pearson,Fundamentals of Financial Management (MindTap Cou...FinanceISBN:9781337395250Author:Eugene F. Brigham, Joel F. HoustonPublisher:Cengage LearningCorporate Finance (The Mcgraw-hill/Irwin Series i...FinanceISBN:9780077861759Author:Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan ProfessorPublisher:McGraw-Hill Education
Essentials Of Investments
Finance
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:9780134897264
Author:KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:Pearson,
Fundamentals of Financial Management (MindTap Cou...
Finance
ISBN:9781337395250
Author:Eugene F. Brigham, Joel F. Houston
Publisher:Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i...
Finance
ISBN:9780077861759
Author:Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:McGraw-Hill Education