1) Practical 4 to be answered in a Word Document by all groups. Submit under Practical 4 link on Blackboard. 2) Day-count convention: use a 360 day-count throughout. 3) Round answers for interest rates to six decimals (e.g. 6.4432%=0.064432 ). 4) Assumptions: a. No Initial margin deposits (for futures transactions) to be deposited in this question. 5) Show calculations in detail. If calculations are not written out in detail, marks will not be allocated in detail. - Suppose the following JIBAR futures contract prices (Table 1.1) and JIBAR spot rates (Table 1.2) are quoted on 25 November 2022 (i.e. 21 days before the December 2022 contract expires). - Note that the spot rates are quoted as nominal annual (NAC) rates, while the futures rates are quoted as annual effective rates (AER). - In this module, JIBAR futures can be quoted as - "price" or "index" format (i.e. index of 100 - yield, where the "yield" is a nominal annual rate [i.e. NAC]); or - "yield" format (i.e. by quoting the annual effective rate [AER]). - The JIBAR futures in Table 1.1 below are quoted in "Index" format (i.e. 100 vield). 1.1. Suppose your company intends to borrow R20 mifion, for 12 months, starting in mid-March 2023. Your bank will only be wiling to offer you a roling 3-month floating rate loan (i.e. loan rate calculated every three months on the first day of the loan). So the first interest rate will only be known in March 2023. Your company is worried that interest rates will increase between today and the start of the 12-month loan period (i.e. March 2023). Explain which one of the futures contracts in the table above you should use to hedge the interest rate risk for the first set interest rate in 2023. Explain in detail, including number of contracts used. (3) 1.2. Suppose you are worried that interest rates will increase any time(s) during the whole loan period (i.e. between 25 Nov 2022 and December 2023). 1.2.1. Explain how you can apply a strip hedge with the futures contracts in the table above to hedge some of this interest rate risk. Explain in detail, including number of contracts used. (3) 1.2.2. Explain how you can apply a stack hedge with the futures contracts in the table above to hedge some of this interest rate risk. Explain in detail. including number of contracts used. (4) 1.3.Suppose you cannot use the JBBAR futures above to hedge the interest rate risk (trom loan mentioned above) for the 3-month period starting in June 2023 (e.g. due to insufficient trading liquidity in the futures market). Fortunately, you can also negotiate an FRAzatars in the OTC market by using the spot rates in Table 1.2 below. Use the spot rates below to calculate the applicable FRAanam rate. (4) Table 1.2: JIBAR Spot rates (NAC) on 25 November 2022: \begin{tabular}{|l|l|} \hline JBAR 381-day rate: & 6.55% \\ \hline \end{tabular} 1.4. Suppose that on 25 November 2022 you decided to only hedge the June 2023 interest rate exposure. Suppose you used the JiBAR futures for June 2023 as 1.4. Suppose that on 25 November 2022 you decided to only hedge the June 2023 interest rate exposure. Suppose you used the JIBAR futures for June 2023 as the hedging instrument. Suppose it is now 10 January 2023 and you decided to exit this hedged position for June 2023. Suppose the 2023 JIBAR Futures contracts are priced on 10 January as in Table 1.3 below. 1.4.1. Calculate and use the futures contract prices (L.e. PV of R100000 per contract) at which you entered and exited the futures contract. Use this price information to calculate the profithoss your hedge would amount to if you offset your position on 10 January. (5) 1.4.2. Use the index values in Tables 1.1 and 1.3 to show the index values at which you entered and exited the futures contract. Use this index information to calculate the profitloss your hedge would amount to if you offset your position on 10 January. (5) 1.4.3. Now, instead, suppose you used the FRAzwam (as calculated in 1.3 above) as the hedging instrument. Suppose it is now 10 January 2023 and you decided to exit this hedged position for June 2023. Suppose the avallable JIBAR spot rates in the market on 10 January were as in Table 1.4 below. What profitloss would your hedge amount to if you oltset your position on 10 January? (11) \begin{tabular}{|l|l|} \hline JIBAR 246-day rate: & 6.4240% \\ \hline JIBAR 270-day rate: & 6.7100% \\ \hline JIBAR 336-day rate: & 6.7650% \\ \hline JIBAR 360-day rate: & 7.1390% \\ \hline \end{tabular} 1) Practical 4 to be answered in a Word Document by all groups. Submit under Practical 4 link on Blackboard. 2) Day-count convention: use a 360day-countthroughout. 3) Round answers for interest rates to six decimals (e.g. 6.4432\% =0.064432 ). 4) Assumptions: a. No Initial margin deposits (for futures transactions) to be deposited in this question. 5) Show calculations in detail. If calculations are not written out in detail, marks will not be allocated in detail. - Suppose the following JIBAR futures contract prices (Table 1.1) and JIBAR spot rates (Table 1.2) are quoted on 25 November 2022 (i.e. 21 days before the December 2022 contract expires). - Note that the spot rates are quoted as nominal annual (NAC) rates, while the futures rates are quoted as annual effective rates (AER). - In this module, JIBAR futures can be quoted as - "price" or "index" format (i.e. index of 100 - yield, where the "yield" is a nominal annual rate [i.e. NAC]); or - "yield" format (i.e. by quoting the annual effective rate [AER]). - The JIBAR futures in Table 1.1 below are quoted in "Index" format (i.e. 100 - 1) Practical 4 to be answered in a Word Document by all groups. Submit under Practical 4 link on Blackboard. 2) Day-count convention: use a 360 day-count throughout. 3) Round answers for interest rates to six decimals (e.g. 6.4432%=0.064432 ). 4) Assumptions: a. No Initial margin deposits (for futures transactions) to be deposited in this question. 5) Show calculations in detail. If calculations are not written out in detail, marks will not be allocated in detail. - Suppose the following JIBAR futures contract prices (Table 1.1) and JIBAR spot rates (Table 1.2) are quoted on 25 November 2022 (i.e. 21 days before the December 2022 contract expires). - Note that the spot rates are quoted as nominal annual (NAC) rates, while the futures rates are quoted as annual effective rates (AER). - In this module, JIBAR futures can be quoted as - "price" or "index" format (i.e. index of 100 - yield, where the "yield" is a nominal annual rate [i.e. NAC]); or - "yield" format (i.e. by quoting the annual effective rate [AER]). - The JIBAR futures in Table 1.1 below are quoted in "Index" format (i.e. 100 vield). 1.1. Suppose your company intends to borrow R20 mifion, for 12 months, starting in mid-March 2023. Your bank will only be wiling to offer you a roling 3-month floating rate loan (i.e. loan rate calculated every three months on the first day of the loan). So the first interest rate will only be known in March 2023. Your company is worried that interest rates will increase between today and the start of the 12-month loan period (i.e. March 2023). Explain which one of the futures contracts in the table above you should use to hedge the interest rate risk for the first set interest rate in 2023. Explain in detail, including number of contracts used. (3) 1.2. Suppose you are worried that interest rates will increase any time(s) during the whole loan period (i.e. between 25 Nov 2022 and December 2023). 1.2.1. Explain how you can apply a strip hedge with the futures contracts in the table above to hedge some of this interest rate risk. Explain in detail, including number of contracts used. (3) 1.2.2. Explain how you can apply a stack hedge with the futures contracts in the table above to hedge some of this interest rate risk. Explain in detail. including number of contracts used. (4) 1.3.Suppose you cannot use the JBBAR futures above to hedge the interest rate risk (trom loan mentioned above) for the 3-month period starting in June 2023 (e.g. due to insufficient trading liquidity in the futures market). Fortunately, you can also negotiate an FRAzatars in the OTC market by using the spot rates in Table 1.2 below. Use the spot rates below to calculate the applicable FRAanam rate. (4) Table 1.2: JIBAR Spot rates (NAC) on 25 November 2022: \begin{tabular}{|l|l|} \hline JBAR 381-day rate: & 6.55% \\ \hline \end{tabular} 1.4. Suppose that on 25 November 2022 you decided to only hedge the June 2023 interest rate exposure. Suppose you used the JiBAR futures for June 2023 as 1.4. Suppose that on 25 November 2022 you decided to only hedge the June 2023 interest rate exposure. Suppose you used the JIBAR futures for June 2023 as the hedging instrument. Suppose it is now 10 January 2023 and you decided to exit this hedged position for June 2023. Suppose the 2023 JIBAR Futures contracts are priced on 10 January as in Table 1.3 below. 1.4.1. Calculate and use the futures contract prices (L.e. PV of R100000 per contract) at which you entered and exited the futures contract. Use this price information to calculate the profithoss your hedge would amount to if you offset your position on 10 January. (5) 1.4.2. Use the index values in Tables 1.1 and 1.3 to show the index values at which you entered and exited the futures contract. Use this index information to calculate the profitloss your hedge would amount to if you offset your position on 10 January. (5) 1.4.3. Now, instead, suppose you used the FRAzwam (as calculated in 1.3 above) as the hedging instrument. Suppose it is now 10 January 2023 and you decided to exit this hedged position for June 2023. Suppose the avallable JIBAR spot rates in the market on 10 January were as in Table 1.4 below. What profitloss would your hedge amount to if you oltset your position on 10 January? (11) \begin{tabular}{|l|l|} \hline JIBAR 246-day rate: & 6.4240% \\ \hline JIBAR 270-day rate: & 6.7100% \\ \hline JIBAR 336-day rate: & 6.7650% \\ \hline JIBAR 360-day rate: & 7.1390% \\ \hline \end{tabular} 1) Practical 4 to be answered in a Word Document by all groups. Submit under Practical 4 link on Blackboard. 2) Day-count convention: use a 360day-countthroughout. 3) Round answers for interest rates to six decimals (e.g. 6.4432\% =0.064432 ). 4) Assumptions: a. No Initial margin deposits (for futures transactions) to be deposited in this question. 5) Show calculations in detail. If calculations are not written out in detail, marks will not be allocated in detail. - Suppose the following JIBAR futures contract prices (Table 1.1) and JIBAR spot rates (Table 1.2) are quoted on 25 November 2022 (i.e. 21 days before the December 2022 contract expires). - Note that the spot rates are quoted as nominal annual (NAC) rates, while the futures rates are quoted as annual effective rates (AER). - In this module, JIBAR futures can be quoted as - "price" or "index" format (i.e. index of 100 - yield, where the "yield" is a nominal annual rate [i.e. NAC]); or - "yield" format (i.e. by quoting the annual effective rate [AER]). - The JIBAR futures in Table 1.1 below are quoted in "Index" format (i.e. 100