Which of the following statements is true? Assume the convenience yield for copper is 1%. If the sum of financing cost and storage cost for copper over the next 6 months equals 5%, the spot price of copper is 6% lower than the 6-month no-arbitrage forward price of copper O The 3-month no-arbitrage forward price of a consumption asset is solely determined by the spot price, interest rates over 3-months, and the income paid on the spot asset Assume the convenience yield for copper is 1%. If the sum of financing cost and storage cost for copper over the next 6 months equals 5%, the 6-month no-arbitrage forward price of copper is 6% lower than the copper spot price None of the other statement is true Gold and silver have always negative cost of carry

Which of the following statements is true? Assume the convenience yield for copper is 1%. If the sum of financing cost and storage cost for copper over the next 6 months equals 5%, the spot price of copper is 6% lower than the 6-month no-arbitrage forward price of copper O The 3-month no-arbitrage forward price of a consumption asset is solely determined by the spot price, interest rates over 3-months, and the income paid on the spot asset Assume the convenience yield for copper is 1%. If the sum of financing cost and storage cost for copper over the next 6 months equals 5%, the 6-month no-arbitrage forward price of copper is 6% lower than the copper spot price None of the other statement is true Gold and silver have always negative cost of carry

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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Assuming that the investment pays no dividend and requires a storage cost of 1 percent (of current value), calculate the current (i.e., July 15th) implied spot price for a ton of the commodity and September 15th implied price for the same ton. In your calculations, assume that an annual riskfree rate of 5 percent prevails over the entire contract life.
On the London Metals Exchange, the price for copper to be delivered in one year is $5,500 a ton. (Note: Payment is made when the copper is delivered.) The risk-free interest rate is 2% and the expected market return is 8%. a. Suppose that you expect to produce and sell 10,000 tons of copper next year. What is the PV of this output? Assume that the sale occurs at the end of the year. Note: Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places. b-1. If copper has a beta of 1.2, what is the expected price of copper at the end of the year? Note: Do not round intermediate calculations. Round your answer to 2 decimal places. b-2. Assume copper has a beta of 1.2. What is the certainty-equivalent end-of-year price? X Answer is complete but not entirely correct. 53.92 million per ton a. Present value b-1. Expected price b-2. Certainty-equivalent price $ $ IS 6,383.38 5,937 per ton
Calculate the Forward Price of an asset with the following data points: • Current Spot Price: $58.75 • Risk Free Rate: 2.0% • Contract Length: 3 months • Known Income (1): $5.00 • Average Yield (q): 0.0% • Delivery Price (K): $60 Round to 2 decimal places.
An asset has a current price of ₱80.00 and it has an expected price of ₱95 in 6 months. In yourassessment, the standard deviation (σ) is 0.45. The reference rate is 5.5%. The value to the shortand to the long would be?
An asset has a current price of $80 and it has an expected price of $95 in 6 months. In yourassessment, the standard deviation (σ) is 0.45. The reference rate is 5.5percent. The value to the short and to the long would be?
On the London Metals Exchange, the price for copper to be delivered in one year is $5,740 a ton. (Note: Payment is made when the copper is delivered.) The risk-free interest rate is 2.00% and the expected market return is 10%. a. Suppose that you expect to produce and sell 12,100 tons of copper next year. What is the PV of this output? Assume that the sale occurs at the end of the year. (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.) b-1. If copper has a beta of 1.26, what is the expected price of copper at the end of the year? (Do not round intermediate calculations. Round your answer to 2 decimal places.) b-2. Assume copper has a beta of 1.26. What is the certainty-equivalent end-of-year price?
consider a one-year forward contract on gold. Suppose that it costs $2 per ounce per year to store gold with payment being made at the end of the year. Assume that the spot price is $450 per ounce and the risk-free rate is 7% per annum for all maturities. Assume continuous compounding. (a) What is the forward price F (0, 1) that does not result in arbitrage profit? (b) If the forward price is $460, do you get any arbitrage profit opportunity? If so, what is your strategy? (You need to provide more than "buy low, sell high".)
The current spot price of gold is $1200 per ounce. The riskless interest rate is 10% per annum. For simplicity, assume there are no storage/security costs of gold. a) What is the arbitrage-free forward price for the delivery of gold in 8 month's time?
What will price be in 1 year? c. What do you expect to happen to price in the following year? (Round your dollar value to 2 decimal places.) d. What is your estimate of DEQS’s intrinsic value per share if you expected DEQS to pay out only 10% of earnings starting in year 6? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
The current price of gold is $300 per ounce. Carrying costs in total are 0.5% (not including interest) of the gold value payable in 6 months time. If the interest rate is 8%, is there an arbitrage opportunity if the gold futures price for delivery in six months is $310 per ounce? B. If an arbitrage opportunity exists, explain how you would conduct it and calculate the arbitrage profit. C. Why is it not possible in reality to perfectly hedge a portfolio using Options and/or futures Instruments? D. Explain the shortcomings of LTCM’s financial strategy that led to its eventual downfall.
Suppose that the zero rates with continuous compounding (per annum) for different maturities in the market are given as: 3-month = 7.6%, 6-month = 7.8%, 9-month = 8.0%, 12-month = 8.1%, 15-month = 8.2%, 18-month = 8.4%. Assume that a bank can borrow or lend at the zero rates in the market. What is the value of an FRA where it will earn 9.0% for a three-month period starting in one year on a principal of £1,000,000? The interest rate is expressed with quarterly compounding. Select one: a. £692.47 b. £902.58 c. £691.93 d. £901.05
Assume that spot gold price is trading at US$1,200 per ounce and Golden Star Resources wants to lock-in this “good” price for 3,000 ounces to be delivered in exactly a year 19th May 2021. The following assumptions applies:Spot price = US$1,200 per ounce. US 12-month cash interest rate = 5% 12-month gold lease rate (or gold borrowing fee) = 2% Banker’s profit margin = 0.5% Calculate the total price Golden Star Resources will receive on 19th May 2020 under normal circumstances.Rates for This Example Spot price = US$1,200 per ounce. US 12-month cash interest rate = 5% 12-month gold lease rate (or gold borrowing fee) = 2.5% Banker’s profit margin = 0.5% Identify the hedging instrument Golden Star Resources used to accomplish its objective. What other hedging tool can Golden Star Resources use to accomplish the same objective, and what financial position will the company take? (Mitigate price risk) Offer TWO reasons why you selected that hedging tool identified in the above…

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