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- An investor has agreed to LEND $10 million for 3-months in the future at a rate of (SOFR + 1%). What position should the investor take in the SOFR Futures contract to hedge against interest-rate changes? Answer in terms of LONG or SHORT position and provide a brief rationale in the response box belowIt is early January 2022. CBG Resources limited intends to borrow £ 2 million in May for three months and is concerned about the risk of rising interest rates. It can borrow at LIBOR plus 1%. The current three-month LIBOR rate (spot rate) is 4.625%. June futures for short sterling have a current market price of 95.35. REQUIRED: Show how CBG Resources can set up for the exposure to the risk of increase in the three month LIBOR rate. Calculate the gain/loss from the interest rate future contract if in May the three month LIBOR is 5.5% and the June futures price is 94.25.At the end of March 2019, a Zambian corporate bond had a coupon rate of 6%, a par (face) value of K1,000 and will mature in March 2022. Market rates of interest are currently 4.5%.Required:A. Using the data given above and assuming semi-annual coupons and a semi-annual discount rate equal to 2.25%, calculate the value of the corporate bond.B. Calculate the Macaulay duration of the Zambian corporate bond described above assuming annual coupons and discount rate.C. Explain Macaulay duration and describe the main characteristics of Macaulay duration in relation to bonds.D. Explain modified duration and explain the limitations of using this measure
- d) A stock price is currently £10. It is known that at the end of the month it will be either £15 or £9. We assume the risk-free interest rate is r 0. Using the idea of pricing by the absence of arbitrage find the value of a one-month European call option with a strike price of £13.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.Melbourne Capital Ltd considers selling European call options on ANZ Bank Ltd for $1.50 per option. The current market price is $17.70 on 28th September 2020, the exercise price is $20, and the maturity of each call option is 6 months. (i) Under what circumstances does the investor make a profit? (ii) Under what circumstances will the option be exercised? (iii) How many call options should the investor sell to raise a total capital of $1,260,000?
- a. A futures contract on a non-dividend-paying stock index with current value $130 has a maturity of one year. If the T-bill rate is 6%, what should the futures price be? b. What should the futures price be if the maturity of the contract is 2 years? c. What if the interest rate is 9% and the maturity of the contract is 2 years? Complete this question by entering your answers in the tabs below. Required A Required B Required C A futures contract on a non-dividend-paying stock index with current value $130 has a maturity of one year. If the T-bill rate is 6%, what should the futures price be? Note: Round your answer to 2 decimal places. Futures priceA 6-month European call option on a dividend-paying stock is cur- rently selling for $1.75. The stock price is $58.56, the strike price is $55, and a dividend of $1.20 is expected in 2 months and 5 months. The risk-free interest rate is 3% per annum for all maturities. (a) What opportunities are there for an arbitrageur? Detail your answer. (b) In this market a European put option with same strike price and maturity is also available for trading. Derive the no-arbitrage $3. price of the put option if the call option has a price of c = %3D (c) The European put option in the above section is trading at $3. What opportunities are there for an arbitrageur? Detail your answer.DEVCON INDUSTRIES LIMITED Income Statement For the years ended Dec. 31, 2018 and 2019 2018 2019 s000's so00's Sales 900000 1125000 Cost of Goods Sold 300000 306600 Gross Profit 600000 818400 Selling and Administrative Expenses 150000 156000 Depreciation Expense 54000 57000 Advertising Expenses 18000 21000 Earnings Before Interest and Taxes Interest Expense 378000 584400 3000 3000 Taxable Income 375000 581400 Taxation (35%) 131250 203490 Net Income 243750 377910 Dividends (40%) 97500 151164 Addition to Retained Earnings 146250 226746 Additional Information Share Price 21 27.3 Ordinary Shares Outstanding 120000000 144000000 DEVCON INDUSTRIES LIMITED Statement of Financial Position As at Dec. 31, 2018 and 2019 2019 s000's ASSETS 2018 LIABILITIES & EQUITY 2018 2019 Current Assets so00's Current Liabilities so00's s000's Inventories 264000 276000 Accounts Payables Notes Payables 138000 114000 Accounts Receivables 294000 330000 150900 132654 Cash and Equivalents 210900 270000 288900 246654…
- (a) Micron Industries is considering issuing a $20,000,000 15-year bond in early 2022, with an annual coupon rate of 4%, and semiannual interest payments. Required: If the company anticipates that the yield to maturity on the date of issue is expected to be 4.5%, given the company’s credit ratings and current market conditions, how much would an investor be willing to pay for $1,000 face value of this bond? (b) Micron Industries is also considering a Class B issue of its common stock on the market via an Initial Public Offering (IPO) in late 2021. The company is expected to pay the following dividends over the next 4 years: $2.00, $3.00, $3.50 and $4.50. Thereafter, the company is expected to increase dividends by an annual rate of 6%. Required: Assuming investors would require a return of 12% on this riskier type of investment, how much would an investor pay for this share today? (c) Micron Industries is also assiduously finalising the issuance of its preference shares. The…(a) Micron Industries is considering issuing a $20,000,000 15-year bond in early 2022, with an annual coupon rate of 4%, and semiannual interest payments. Required:If the company anticipates that the yield to maturity on the date of issue is expected to be 4.5%, given the company’s credit ratings and current market conditions, how much would an investor be willing to pay for $1,000 face value of this bond? (b) Micron Industries is also considering a Class B issue of its common stock on the market via an Initial Public Offering (IPO) in late 2021. The company is expected to pay the following dividends over the next 4 years: $2.00, $3.00, $3.50 and $4.50. Thereafter, the company is expected to increase dividends by an annual rate of 6%. Required: Assuming investors would require a return of 12% on this riskier type of investment, how much would an investor pay for this share today? (c) Micron Industries is also assiduously finalising the issuance of its preference shares. The company…15. NorthRock Investments is an asset manager that invests primarily in floating rate debt. The size of their bond portfolio is $700 million. NorthRock believes that inflation has peaked, which will cause interest rates to fall over the medium- term. They decided to hedge against this risk by entering into a swap based on 1-month LIBOR on 1 September 2022. The details of the swap are as follows: Swap Fixed Rate 3.80% Date 2022/09/20 2022/10/20 30 1-Month Libor (%) 2.78 2.31 What swap must NorthRock enter into to hedge its position and what will be NorthRock's first cash flow? 4 A) Pay fixed, receive 1-m LIBOR swap. $595 000 payment B) Pay fixed, receive 1-m LIBOR swap. $869 167 payment C) Pay 1-m Libor, receive fixed, $595 000 receipt D) Pay 1-m Libor, receive fixed., $869 167 receipt E) Pay fixed, receive 1-m LIBOR swap. $1 621 667 payment
