Need the answers for these questions of Financial Derivativessolved DUE at 12 00 on 09 29 2016 Abuyer(MrBen)andseller(MsSally)agreetoday(t)toaforwardcontractinwhichtheywillexchange100sharesofXYZstock,attheendof6months,forG(t,t 6) $40pershare Let'sassumethattheyarebothwealthy( havedeeppockets ),soneitherislikelytodefault Interestratesareconstantat0 5 permonth IfSallydoesnotowntheshares,andatdatet 6thesharepriceofXYZhasrisento$46,whatmustshedotohonorthatforward Whatishergainorlossatthattime Supposethat,incontinuingthepreviousquestion 3monthshavepassed,andMrBenwantstocancelhiscontractwithMsSally,approachesherandaskstoannultheirpreviousarrangement Sallyreasonsasfollows shenoticesthatothersinthemarketarequotinga3 monthforwardprice itisG(t 3 t 6) $36 WhatistheminimumcompensationsheshouldrequiretoletBenannulthearrangement WhatifG(t 3 t 6) $44 ContinuingfromQ1 Supposeatt 4,Swantstoundo(annul,cancel)theoriginalforwardstruckwithBen,thathas2monthstorun ShenoticesthatthecurrentquoteforG(t 4,t 6),anewly mintedforwardcontractwithadefault freedealer,is$36 40askand$36 38bid (Thismeansthatthedealeriswillingtobuya2monthforwardonXYZstockfromSallyat36 38,andsellthat2monthsforwardtoSallyat$36 40 ) WhatshouldSallydo Whathappenstosharesandmoneytransfersatt 6 Takethecurrentpriceofanon dividendpayingstockTXInctobe $198 00pershare,thecurrentrateofinterestas1 8 peryear take thattobearateatwhichyoucanborroworlend Whatshouldbe thecurrentlyquotedforwardpricepersharefor1 yeardelivery For 6month delivery Ignoredefaultandtransactionscosts Ifthe1 year forward pricewasquotedat$200 05askisthereapreferredstrategy forsomeonewhowantedtobuyTXstocktodayandholdfor1year ThecurrentsharepriceisS(t) $198foradividendpayingstock NOTTX Inc ,thecurrentinterestrateis1 8 peryear Whatisyourassessment ofthepresentvalueofallcashdividendsreceivedfrom NOTTX overthenextyear,iftheobserved1 yearforwardpriceinacompetitive forwardmarketwas $199 56 Takethesamedataasinproblem10 S 50,divatday90 d(90) d(180) 50cents,r 6 perannumasbefore Whatsthechangeinthecurrentfair9 monthforwardpriceifthesharepricemovedimmediatelyto$50 05 Whatifyoudifferentiatedtheformulavaluewithrespecttothesharepriceandcomputedthechangecommensuratewitha5centsharepriceincrease (CommodityFuturesPricing)IfthecurrentspotpriceofcornisS $3 39 bushel Youborrowmoneyat3 60 peryearwithdailycompoundingtaketheeffectivedailyratetobe0 01 Youcanleasestoragefacilitiesforaminimumof100,000bushelsat$1,200 Whatstheupperboundonthecurrentlyquoted90 dayfutureoncorn,abovewhichyoucanmakeasureprofit Wecallthisthe full carryprice Eachfuturescontractis on 5,000bushels Ihave$100minvestedinS Passets,andIselltoday$10min1 monthfuturesand$15min4 monthfutures,allontheS P IpostInitialMarginandmeetM2Mflowsfrommywealthinvestedelsewhere Canyoutellmewhatthefuturebehaviorofmy$100mparcelwillbe,intermsofitsriskcharacteristics ,overthenextmonth,givenIwasreceivingthecharacteristicof$100mriskinstocksuntiltoday Explain Aninvestorwhobuysashareandsellsitsassociatedfutureshasthesamegainorlossdaytodayasonewhobuystheshareandsellsitsassociateddefault freeforwardcontractwiththesameexpirydateT,becauseforwardandfuturespricesarealwaysequal True Explainbriefly (AssetAllocation)ApensionplanhasitsstockmarketinvestmentsinseveralcountryindexportfoliositbuysparcelsofstocksineachcountrythatareexactlylikethemaincountryequityIndex ItcurrentlyhasinvestmentsinJapan(theNikkeiIndex),theUK(theFTSEIndex),andtheUS(theS P500),inapprox proportions20 20 60 assumethattheoverallportfoliovalueis$500m Itbecomespessimisticaboutglobalequities itdecidestoreduceitsequityexposurebyatotalof$100macrossallcountries,butkeepthesameproportionsasithasacrossthecountries Youcomputethatthatmovewillreduceitsdollarexposureto UK andJapanesestocksfrom(theequivalentof)$100mineachto$80m,andreducetheUSequityexposurefrom$300mto$240m Ignorecurrencyrisk,andassumethatthefirmishappyifthereducedequitypositionineachcountrywasinvestedinlocal(i e UK,Japan,US)TreasuryBills ShowwhatitcoulddoDIRECTLY,andwiththeaidoffutures

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Need the answers for these questions of Financial Derivativessolved. DUE at 12:00 on 09.29.2016! Abuyer(MrBen)andseller(MsSally)agreetoday(t)toaforwardcontractinwhichtheywillexchange100sharesofXYZstock,attheendof6months,forG(t,t+6)=$40pershare.Let'sassumethattheyarebothwealthy(havedeeppockets),soneitherislikelytodefault.Interestratesareconstantat0.5%permonth.IfSallydoesnotowntheshares,andatdatet+6thesharepriceofXYZhasrisento$46,whatmustshedotohonorthatforward?Whatishergainorlossatthattime? Supposethat,incontinuingthepreviousquestion:3monthshavepassed,andMrBenwantstocancelhiscontractwithMsSally,approachesherandaskstoannultheirpreviousarrangement.Sallyreasonsasfollows:shenoticesthatothersinthemarketarequotinga3-monthforwardprice-itisG(t+3;t+6)=$36.WhatistheminimumcompensationsheshouldrequiretoletBenannulthearrangement?WhatifG(t+3;t+6)=$44? ContinuingfromQ1.Supposeatt+4,Swantstoundo(annul,cancel)theoriginalforwardstruckwithBen,thathas2monthstorun.ShenoticesthatthecurrentquoteforG(t+4,t+6),anewly-mintedforwardcontractwithadefault-freedealer,is$36.40askand$36.38bid (Thismeansthatthedealeriswillingtobuya2monthforwardonXYZstockfromSallyat36.38,andsellthat2monthsforwardtoSallyat$36.40.) .WhatshouldSallydo?Whathappenstosharesandmoneytransfersatt+6? Takethecurrentpriceofanon-dividendpayingstockTXInctobe $198.00pershare,thecurrentrateofinterestas1.8%peryear;take thattobearateatwhichyoucanborroworlend.Whatshouldbe thecurrentlyquotedforwardpricepersharefor1-yeardelivery?For 6month delivery?Ignoredefaultandtransactionscosts.Ifthe1-year

Need the answers for these questions of Financial Derivativessolved.

DUE at 12:00 on 09.29.2016!

Abuyer(MrBen)andseller(MsSally)agreetoday(t)toaforwardcontractinwhichtheywillexchange100sharesofXYZstock,attheendof6months,forG(t,t+6)=$40pershare.Let'sassumethattheyarebothwealthy("havedeeppockets"),soneitherislikelytodefault.Interestratesareconstantat0.5%permonth.IfSallydoesnotowntheshares,andatdatet+6thesharepriceofXYZhasrisento$46,whatmustshedotohonorthatforward?Whatishergainorlossatthattime?
Supposethat,incontinuingthepreviousquestion:3monthshavepassed,andMrBenwantstocancelhiscontractwithMsSally,approachesherandaskstoannultheirpreviousarrangement.Sallyreasonsasfollows:shenoticesthatothersinthemarketarequotinga3-monthforwardprice-itisG(t+3;t+6)=$36.WhatistheminimumcompensationsheshouldrequiretoletBenannulthearrangement?WhatifG(t+3;t+6)=$44?
ContinuingfromQ1.Supposeatt+4,Swantstoundo(annul,cancel)theoriginalforwardstruckwithBen,thathas2monthstorun.ShenoticesthatthecurrentquoteforG(t+4,t+6),anewly-mintedforwardcontractwithadefault-freedealer,is$36.40askand$36.38bid(Thismeansthatthedealeriswillingtobuya2monthforwardonXYZstockfromSallyat36.38,andsellthat2monthsforwardtoSallyat$36.40.).WhatshouldSallydo?Whathappenstosharesandmoneytransfersatt+6?
Takethecurrentpriceofanon-dividendpayingstockTXInctobe$198.00pershare,thecurrentrateofinterestas1.8%peryear;takethattobearateatwhichyoucanborroworlend.Whatshouldbethecurrentlyquotedforwardpricepersharefor1-yeardelivery?For6monthdelivery?Ignoredefaultandtransactionscosts.Ifthe1-yearforwardpricewasquotedat$200.05askisthereapreferredstrategyforsomeonewhowantedtobuyTXstocktodayandholdfor1year?
ThecurrentsharepriceisS(t)=$198foradividendpayingstockNOTTXInc...,thecurrentinterestrateis1.8%peryear.WhatisyourassessmentofthepresentvalueofallcashdividendsreceivedfromNOTTXoverthenextyear,iftheobserved1-yearforwardpriceinacompetitiveforwardmarketwas$199.56?
Takethesamedataasinproblem10:S=50,divatday90=d(90)=d(180)=50cents,r=6%perannumasbefore.Whatsthechangeinthecurrentfair9-monthforwardpriceifthesharepricemovedimmediatelyto$50.05?Whatifyoudifferentiatedtheformulavaluewithrespecttothesharepriceandcomputedthechangecommensuratewitha5centsharepriceincrease?
(CommodityFuturesPricing)IfthecurrentspotpriceofcornisS=$3.39/bushel.Youborrowmoneyat3.60%peryearwithdailycompoundingtaketheeffectivedailyratetobe0.01%.Youcanleasestoragefacilitiesforaminimumof100,000bushelsat$1,200.Whatstheupperboundonthecurrentlyquoted90-dayfutureoncorn,abovewhichyoucanmakeasureprofit?Wecallthisthefull-carryprice!Eachfuturescontractison5,000bushels.
Ihave$100minvestedinS&Passets,andIselltoday$10min1-monthfuturesand$15min4-monthfutures,allontheS&P.IpostInitialMarginandmeetM2Mflowsfrommywealthinvestedelsewhere.Canyoutellmewhatthefuturebehaviorofmy$100mparcelwillbe,intermsofitsriskcharacteristics,overthenextmonth,givenIwasreceivingthecharacteristicof$100mriskinstocksuntiltoday?Explain.
Aninvestorwhobuysashareandsellsitsassociatedfutureshasthesamegainorlossdaytodayasonewhobuystheshareandsellsitsassociateddefault-freeforwardcontractwiththesameexpirydateT,becauseforwardandfuturespricesarealwaysequal.True?Explainbriefly.
(AssetAllocation)ApensionplanhasitsstockmarketinvestmentsinseveralcountryindexportfoliositbuysparcelsofstocksineachcountrythatareexactlylikethemaincountryequityIndex.ItcurrentlyhasinvestmentsinJapan(theNikkeiIndex),theUK(theFTSEIndex),andtheUS(theS&P500),inapprox.proportions20:20:60;assumethattheoverallportfoliovalueis$500m.Itbecomespessimisticaboutglobalequities; itdecidestoreduceitsequityexposurebyatotalof$100macrossallcountries,butkeepthesameproportionsasithasacrossthecountries.YoucomputethatthatmovewillreduceitsdollarexposuretoUKandJapanesestocksfrom(theequivalentof)$100mineachto$80m,andreducetheUSequityexposurefrom$300mto$240m.Ignorecurrencyrisk,andassumethatthefirmishappyifthereducedequitypositionineachcountrywasinvestedinlocal(i.e.UK,Japan,US)TreasuryBills.ShowwhatitcoulddoDIRECTLY,andwiththeaidoffutures.