Purchase Solution

Benefit of Options

Not what you're looking for?

Ask Custom Question

5. Suppose that the pension you are managing is expecting an inflow of funds of $100 million next year and you want to make sure that you will earn the current interest rate of 8% when you invest the incoming funds in long term bonds. How would you use the futures market to do this?

6. How would you use the options market to accomplish the same thing as in Problem 5? What are the advantages and disadvantages of using an options contract rather than a futures contract?

Purchase this Solution
Solution Summary

This explains the Benefits of Options

Solution Preview

5. Suppose that the pension you are managing is expecting an inflow of funds of $100 million next year and you want to make sure that you will earn the current interest rate of 8% when you invest the incoming funds in long term bonds. How would you use the futures market to do this?
Index futures and options are instruments that enable you to hedge your portfolio or open positions in the market. Option contracts allow you to run your profits while restricting your downside risk.
A futures contract is an agreement between two parties to buy or sell an asset at a certain time in the future at a ...

Purchase this Solution
Free BrainMass Quizzes
Employee Orientation

Test your knowledge of employee orientation with this fun and informative quiz. This quiz is meant for beginner and advanced students as well as professionals already working in the HR field.

Accounting: Statement of Cash flows

This quiz tests your knowledge of the components of the statements of cash flows and the methods used to determine cash flows.

IPOs

This Quiz is compiled of questions that pertain to IPOs (Initial Public Offerings)

Motivation

This tests some key elements of major motivation theories.

MS Word 2010-Tricky Features

These questions are based on features of the previous word versions that were easy to figure out, but now seem more hidden to me.

View More Free Quizzes
Related BrainMass Solutions

  • Consumer theory and benefit packages

    If too many options are offered, employees may choose the higher wages rather than spend excessive time researching all their options. Benefit packages and maximization of utility by employees.

  • Income/Loss to Shareholders

    (a) Calculate the loss to shareholders from the exercise of employee stock options during 2002. The tax benefit from exercise of employee stock options is $12 million.

  • Depreciation: The Use of Real Estate

    Options to Acquire Use of Real Estate: Tax-exempt organizations like public hospitals, government entities or charitable trusts do not have benefit of the depreciation deductions because of not paying taxes.

  • Operational Research Hypothesis

    Statement of your problem #1: To what extent does Inclusion/mainstreaming/pull-out options in the public school system benefit autistic children in the general education system?

  • If you had a choice, would you pick a stock with or without

    In the case of investing with no dividend payout, although the investor can closely monitor the financial progress of the company, there is no immediate benefit in the same way that dividends are an immediate, tangible benefit, compared to non-dividend

  • grapevine

    the cost and benefit of both the options.

  • Apple Computer's Steve Jobs Stock Option Dilemma

    Another look: Did Steve Jobs 'financially benefit' from backdated options?.

  • Measuring Intangible Benefits

    A fourth option is to analyze existing data on the benefit and develop a value for the intangible benefit. This is a difficult option because it requires the existence of data resources.

  • Inequities in employee benefits

    The discussion highlights the inequities in employee benefit programs for various workers at different levels of the organization. Legal and ethical implications of offering stock or share options are also discussed, from a global perspective.

  • Company Executive Compensation: Stock Options

    The ownership of large amounts of options induced many greedy executives to do everything they could, even falsifying records to drive the stock price up so they could benefit by cashing in while the stock was artificially high.

View More Related Solutions