PRIN.OF CORPORATE FINANCE
13th Edition
ISBN: 9781260013900
Author: BREALEY
Publisher: RENT MCG
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Textbook Question
Chapter 26, Problem 1PS
Vocabulary check* Define the following terms:
- a. Spot price
- b. Forward vs. futures contract
- c. Long vs. short position
- d. Basis risk
- e. Mark to market
- f. Net convenience yield
Expert Solution & Answer
Summary Introduction
To discuss: The following words.
Explanation of Solution
- a. Spot price is defined as price paid for quick delivery.
- b. Forward contracts are agreement to purchase or sell at a definite future date at a certain price. Future contracts are also agreement to purchase or sell at a specified future date at a certain price. Even though, they differ from forward contract that is an exchange traded and marked to market.
- c. Long position can be defined as investors have long period and have agreed to purchase the asset. Short position means investors are short have agreement to sell.
- d. Basis can be defined as the risk that arises due to the price of the asset used to hedge does not perfectly correlated with that of the asset that is being hedged.
- e. Mark to market can be defined as the day to day settlement of profit and loses arise from a position.
- f. Net convenience yield means the benefit from owning the commodity rather than the assurance of future delivery less the cost of keeping the commodity.
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Students have asked these similar questions
What is the spread (i.e., difference) between futures price and spot price called?
a) Convergence
b) Basis risk
c) Market risk
d) Credit risk
Market's Risk premium measures
Select one:
a.
The market return plus the risk free rate.
b.
The risk free rate and market portfolio rate of return
c.
The risk free rate plus the risk premium
d.
The change in the risk free rate and the market return
e.
The difference between return on market portfolio and risk-free rate
Match the vocabulary below with the following statements. • organized market,• maintenance margin,• standardized contract,• margin call• standardized expiration,• variation margin,• clearing corporation,• open interest,• daily recontracting• interest rate risk• marking to market• cross-hedge• convergence• delta-hedge• settlement price• delta-cross-hedge• default risk of a future• ruin risk• initial margin(a) Daily payment of the change in a forward or futures price.(b) The collateral deposited as a guarantee when a futures position is opened.(c) Daily payment of the discounted change in a forward price.(d) The minimum level of collateral on deposit as a guarantee for a futures position.(e) A hedge on a currency for which no futures contracts exist and for an expiration otherthan what the buyer or seller of the contract desires.(f) An additional deposit of collateral for a margin account that has fallen below itsmaintenance level.(g) A contract for a standardized number of units of a…
Chapter 26 Solutions
PRIN.OF CORPORATE FINANCE
Ch. 26 - Vocabulary check Define the following terms: a....Ch. 26 - Prob. 2PSCh. 26 - Catastrophe bonds On some catastrophe bonds,...Ch. 26 - Futures and options A gold-mining firm is...Ch. 26 - Prob. 5PSCh. 26 - Prob. 6PSCh. 26 - Futures contracts List some of the commodity...Ch. 26 - Prob. 8PSCh. 26 - Futures prices Calculate the value of a six-month...Ch. 26 - Futures prices In December 2017, six-month futures...
Ch. 26 - Prob. 11PSCh. 26 - Prob. 13PSCh. 26 - Prob. 15PSCh. 26 - Prob. 16PSCh. 26 - Prob. 17PSCh. 26 - Convenience yield In March 2018, six-month bitcoin...Ch. 26 - Prob. 19PSCh. 26 - Prob. 20PSCh. 26 - Total return swaps Is a total return swap on a...Ch. 26 - Prob. 22PSCh. 26 - Prob. 23PSCh. 26 - Hedging What is meant by delta () in the context...Ch. 26 - Hedging You own a 1 million portfolio of aerospace...Ch. 26 - Prob. 26PSCh. 26 - Prob. 27PSCh. 26 - Prob. 28PSCh. 26 - Hedging Price changes of two gold-mining stocks...Ch. 26 - Prob. 30PSCh. 26 - Prob. 31PSCh. 26 - Prob. 32PSCh. 26 - Prob. 33PSCh. 26 - You are a vice president of Rensselaer Advisers...
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