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# Futures

### Options and Futures - Percentage Gain/Loss and Maintenance M

1) The contract for grain is \$5,000 per bushel. You purchase a contract of corn at \$4.40 per bushel with an initial margin requirement of 8% of the dollar value of the contract. The price goes up to \$4.49 in one month. a. Calculate the percentage of gain based on price appreciation. b. Calculate the percentage of gain b

### Retirement-Planning Investments

P3-4. Dixon Shuttleworth has been offered the choice of three retirement-planning investments. The first investment offers a 5 percent return for the first 5 years, a 10 percent return for the next 5 years, and a 20 percent return thereafter. The second investment offers 10 percent for the first 10 years and 15 percent thereafte

### Hedging interest rates using futures.

In your portfolio you have \$1 million of 20 year, 8 5/8 percent bonds which are selling at 83.15 (or 83 15/32) against this position. Because you feel interest rates will rise you sell 10 bond futures at 81.15 (or 81 15/32) against this position. Two months later you decide to close your position. The bonds have fallen to 78 and

### 10 Multiple choice questions on derivatives: short hedge, basis, anticipatory hedge, spot, asset, underlying, futures, cross hedge, minimum variance hedge ratio, profit at expiration, profit on a hedge, bonds, optimal stock index futures hedge ratio, portfolio, beta, S&P 500 futures, multiplier, ordinary hedge, risk

Please see attached. 1. A short hedge is one in which a. the margin requirement is waived b. the futures price is lower than the spot price c. the hedger is short futures d. none are correct e. the hedger is short in the spot market 2. What happens to the basis through the contract's life? a. it init

### Phoenix Motors wants to lock in the cost of 10,000 ounces of platinum to be used in next quarter's production of catalytic converters. It buys three-month futures contracts for 10,000 ounces at a price of \$550 per ounce. a. Suppose the spot price of platinum falls to \$525 in three months' time. Does Phoenix have a profit or loss on the futures contract? Has it locked in the cost of purchasing the platinum it needs?

Phoenix Motors wants to lock in the cost of 10,000 ounces of platinum to be used in next quarter's production of catalytic converters. It buys three-month futures contracts for 10,000 ounces at a price of \$550 per ounce. a. Suppose the spot price of platinum falls to \$525 in three months' time. Does Phoenix have a profit or lo

### Futures Pricing Problem

Suppose there is a financial asset, a bond ABC, which is the underlying asset for a futures contract with settlement six months from now. You know the following about this financial asset and the futures contract: -In the cash market ABC is selling for \$80. -ABC pays \$8 per year in two semi-annual payments of \$4, and the n

### Future Challenges Facing Health Care Systems

When you think about the challenges facing the health care system, where will the healthcare organizations seek assistance in their future? Will they use a strategic management approach? Will they remain bureaucratic? Will they use a population ecology approach? Other approaches? Defend your choice.

### Futures, number of contract

A. The soybean contract has a trading unit of 5,000 bu. If you would like to hedge on 15,000bu, how many futures contracts should you buy or sell? b. The feeder cattle contract has a trading unit of 50,000 pounds. If you would like to hedge on 750,000 pounds, how many futures contracts should you buy or sell? c. The gold

### Difference between forward and futures markets

How do forward and futures markets differ?

### Gold Options & Futures

1. Suppose you agree to purchase one-ounce of gold for \$382 any time over the next month. The current price of gold is \$380. The spot price of gold then falls to \$377 the next day. If the agreement is represented by a futures contract marking to market on a daily basis as the price changes, what is your cash flow at the end

### Futures Contracts

On Monday morning, you take a long position in a pound futures contract that matures on Wednesday afternoon. The agreed-upon price is \$1.78 for £62,500. At the close of trading on Monday, the price has risen to \$1.80. At Tuesday close, the price rises further to \$1.80. At Wednesday close, the price falls to \$1.785, and the con

### Use of Futures Contracts to hedge the issue of bonds, repurchasing outstanding common stock on the open market

1.a. A corporation is interesting in issuing bonds to the public six month from today. How can we use the futures market to hedge such a transaction? What type of future contract would you recommend? b. A corporation is interested in repurchasing some of its outstanding common stock on the open market, how can we use futures

### Arbitrageur's Profit and IMM Euro

Suppose that the forward ask price for November 7 on euros is \$0.9227 at the same time that the price of IMM euro futures for delivery on November 7 is \$0.9045. Can an arbitrageur profit from this situation?

### Can futures be traded as warrants

Can futures be traded as warrants? Can future contracts change hands and move in the market from the original sellers/buyers to the new investors?

### Investment: Do exchange-imposed price limits protect futures traders from losses?

Do exchange-imposed price limits protect futures traders from losses that would result in the absence of such limits? Explain.

### How much the wage gap will cost us in the future

Learning more about equal pay for women compared to men. How much the wage gap will cost us in the future?

### Case Study, "Futures Markets": This is the case study about the futures market. The case study consists of 3 questions. It is starting with a easy concepts and as the questions are progressing it becomes bit more advanced, require bit more thinking. It is very important to answer every preceding question correct, because subsequent questions are based on the preceding answers.

QUESTION 1: Enter into a futures contract Following the email from the CEO you have logged on to the GG Futures Exchange (GGFE) website to obtain the coffee futures (COF) price and the GG Commodities Exchange (PCE) to obtain the current coffee spot price (COS). Today's date is 10 May 2006 a) From the information prov

### Futures: Margin Call..

Yesterday, you entered ito a furtures contract to SELL Euro62,500 at \$1.20 per euro. Initial performance bond is \$1,500 and maintenance level is \$500. What's the settle price will you get a demand for additional funds to be posted?

### Margin account: If you have a long position in one futures contract, the changes in the margin account from daily marking to market will result in a balance of the margin account after the third day to be:

Today's settlement price for Mercantile Exchange Yen futures contract is \$0.8011/Y100. Margin account balance is \$2,000. Next three days settlement prices are \$0.8057/T100, \$0.7996/T100 and \$0.7985/Y199. The contractual size of one Mercantile Exchange is Yen12,500,00. If you have a long position in one futures contract, the

### Futures: Margin Call

Yesterday, you entered ito a furtures contract to buy Euro62,500 at \$1.20 per euro. Initial performance bond is \$1,500 and maintenance level is \$500. What's the settle price will you get a demand for additional funds to be posted?

### Futures market

What is the role of the futures market? Please provide an example.

### Hedge on Futures

You wish to hedge 90 percent of the current portfolio value with futures. The value of the portfolio is \$50 million and tracks the S&P 500 index. The index is 1,076.32 (\$250 per point) and the portfolio has a beta of 1.2. Calculate the appropriate hedge using futures contracts.

### Future Value of Deposits

Deposits of \$8 are made in an account every third year. if the rate of interest is 1% per year, what will be the Future Value of these deposits in year 1001. (note that deposits are made every third year 1st. deposit in year 3 2nd. deposit in year 6 3rd. deposit in year 9 and so on.

### Practice problems

Chapter 4 practice problems 1. What is the future value, where present value=1000, r=6% and t=1? a. 1060.00 b. 1600.00 c. 943.40 d. 900.00 2. What is the future value, where present value=1000, r=6% and t=10? a. 1600.00 b. 400.00 c. 1790.85 d. 1645.32 3. What is the present value, where future value = 1000, r=6%

### Maturity of futures contract

Currency futures contracts are traded on organized exchanges. Suppose you sell a contract on Australian dollars in the amount of A\$100,000 on the Chicago Mercantile Exchange at \$0.7900/A\$. Upon maturity of the contract, the futures price is \$0.7500/A\$. a. Have you made money or lost money? How much have you made or lost? b

### Hedging payable with a futures contract

If your company has a payment of 200 million euros due one year from now, how would you hedge the foreign exchange risk in this payment with a 125,000 euros future contract?

### Hedging interest rates using Futures contracts

A bank issues a \$100,000 fixed-rate 30-year mortgage with a nominal annual rate of 4.5%. If the required rate drops to 4.0% immediately after the mortgage is issued, what is the impact on the value of the mortgage? Assume the bank hedged the position with a short position in two 10-year T-bond futures. The original price was 64

### Spot and futures

24. A bank customer will be going to London in June to purchase \$100,000 in new inventory. The current spot and futures exchange rates are as follows: Exchange Rates (Dollars/Pound) Period Rate Spot 1.5342 March 1.6212 June 1.6901 September 1.7549 December 1.8416 The customer enters into a position in June

### Futures & Options Pricing: Calculate call options values; consider time premium

Futures Pricing Problem Suppose there is a financial asset ABC, which is the underlying asset for a futures contract with settlement six months from now. You know the following about this financial asset and futures contract: o In the cash market ABC is selling for \$80. o ABC pays \$8 per year in two semi-annua

### Futures Contract Equilibriums

Anyone can borrow or lend cash for 1% a month, compounded monthly. Prices for silver are listed below (see attachment). a. This market is not in equilibrium. How could you earn the largest possible arbitrage profit, assuming that the arbitrate opportunity is going to disappear within a few minutes as other trader catch on? b.