The current price of the Exchange Traded Fund YHT, which does not pay dividends, is $12.5 per share. Your position, worth 8750 dollars, consists entirely of YHT shares. The effective 3-month interest rate is 0.25% and futures contracts on YHT with 3- month maturity are trading at fair value. To protect your position against potential losses, you decide to partially hedge by selling 595 YHT futures that expire in 3 months. You have built a proprietary model according to which the 3-month net return on YHT will be between -15% and 17%. What is the lowest possible value of your combined position in 3 months based on your model? $ 8571.72 $8228.85 $7885.98 $7714.55

The current price of the Exchange Traded Fund YHT, which does not pay dividends, is $12.5 per share. Your position, worth 8750 dollars, consists entirely of YHT shares. The effective 3-month interest rate is 0.25% and futures contracts on YHT with 3- month maturity are trading at fair value. To protect your position against potential losses, you decide to partially hedge by selling 595 YHT futures that expire in 3 months. You have built a proprietary model according to which the 3-month net return on YHT will be between -15% and 17%. What is the lowest possible value of your combined position in 3 months based on your model? $ 8571.72 $8228.85 $7885.98 $7714.55

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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The one-year futures price on a particular stock-index portfolio is 2,620, the stock index currently is 2,600, the one-year risk-free interest rate is 2.0%, and the year-end dividend that will be paid on a $2,600 investment in the index portfolio is $25. Required: By how much is the contract mispriced? (Input the amount as positive value.) The futures price is its "proper" or parity value.
The one-year futures price on a particular stock - index portfolio is 1,124.91, the stock index currently is 1, 116, the one-year risk-free interest rate is 2.61%, and the year-end dividend that will be paid on a $1,116 investment in the index portfolio is $13.73. By how much is the contract mispriced? future price - parity price
FinTrade has just introduced a single-stock futures contract on Brandex stock, a company that currently pays no dividends. Each contract calls for delivery of 800 shares of stock in one year. The T-bill rate is 8% per year. Required: If Brandex stock now sells at $180 per share, what should the futures price be? If the Brandex price drops by 6%, what will be the change in the futures price and the change in the investor’s margin account? If the margin on the contract is $13,900, what is the percentage return on the investor’s position?
Suppose that you purchase a Treasury bond futures contract at $95 per $100 of face value. What is your obligation when you purchase this futures contract? If an FI purchases this contract, in what kind of hedge is it engaged? Assume that the Treasury bond futures price falls to 94. What is your loss or gain? Assume that the Treasury bond futures price rises to 97. Mark your position to market.
MHF believes the price of Amazon is going to fall substantially over the next 8 months. MHF uses an option (use the January 2024 contract with an exercise price of $95) to hedge the risk as it owns 10 million shares of Amazon. It will hedge exactly 50% of its position. Identify the type of option most likely used. Show the total position (please put this in a table) of the spot and derivative at expiration if the price of Amazon at expiration is a) $62; b) $77; c) $93; d) $112; e) $128. Only typed answer
An asset manager is contemplating to enter into a two-year equity swap in which he gets the S&P 500 Index's rate of return in exchange for paying a fixed interest rate. At the start of the trade, the S& P 500 stock index was at 1161.73. Semiannual payments are required under the swap. A. Determine the swap's annualized fixed rate, given the current interest rate term structure as follows: Lo(180) = 0.0501 Lo(360) = 0.0533 L.(540) = 0.0640 | L.(720) = 0.0669 the swap's market value 160 days late Det is in place. the new rm structure L160(20) = 0.0549 L160(200) = 0.0633 L160(380) = 0.0689 L160(560) = 0.0712 The S&P 500 is currently trading at 1214.94. The swap's nominal principal is $110 million. B.
Stock XYZ is currently trading at $150. One-year futures contract price on XYZ is $152. XYZ is scheduled to pay $3 cash dividends per share in one year and the annually compounded risk-free rate is 4% p.a. To exploit the arbitrage opportunity, an arbitrageur would Select one alternative: O Buy XYZ, borrow money, and sell futures O Short-sell XYZ, borrow money, and buy futures O Buy XYZ, lend money, and sell futures Short-sell XYZ, lend money, and buy futures
OneChicago has just introduced a single-stock futures contract on Brandex stock, a company that currently pays no dividends. Each contract calls for delivery of 1,000 shares of stock in 1 year. The T-bill rate is 6% per year.a. If Brandex stock now sells at $120 per share, what should the futures price be?b. If the Brandex price drops by 3%, what will be the change in the futures price and the change in the investor’s margin account?c. If the margin on the contract is $12,000, what is the percentage return on the investor’s position?
You would like to be holding a protective put position on the stock of XYZ Co. to lock in a guaranteed minimum value of $109 at year- end. XYZ currently sells for $109. Over the next year the stock price will increase by 12% or decrease by 12%. The T-bill rate is 6%. Unfortunately, no put options are traded on XYZ Co. a. Suppose the desired put option were traded. How much would it cost to purchase? (Do not round intermediate calculations and round your final answer to 2 decimal places.) Cost to purchase b. What would have been the cost of the protective put portfolio? (Do not round intermediate calculations and round your final answer to 2 decimal places.) Cost of the protective put portfolio c. What portfolio position in stock and T-bills will ensure you a payoff equal to the payoff that would be provided by a protective put with X = 109? Show that the payoff to this portfolio and the cost of establishing the portfolio match those of the desired protective put. (Do not round…
Suppose the 1-year futures price on a stock-index portfolio is 1,914, the stock index currently is 1,900, the 1-year risk-free interest rate is 3%, and the year-end dividend that will be paid on a $1,900 investment in the market index portfolio is $40.a. By how much is the contract mispriced?b. Formulate a zero-net-investment arbitrage portfolio and show that you can lock in riskless profits equal to the futures mispricing.c. Now assume (as is true for small investors) that if you short sell the stocks in the market index, the proceeds of the short sale are kept with the broker, and you do not receive any interest income on the funds. Is there still an arbitrage opportunity (assuming that you don’t already own the shares in the index)? Explain.d. Given the short-sale rules, what is the no-arbitrage band for the stock-futures price relation-ship? That is, given a stock index of 1,900, how high and how low can the futures price be without giving rise to arbitrage opportunities?
You enter into a 1-year futures contract on a non-dividend paying stock when the stock price is $100 and the risk-free interest rate is 5% per annum. Six months later the stock price has fallen to $90, and the interest rate is 4% per annum. Which of the answers below is closest to the change in the futures price? Assume discrete compounding and discounting. Question 6Answer a. -12.34 b. -11.40 c. -10.00 d. -13.20
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.

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