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Options / Swaps / Bonds

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Problem 1
A Call Option on the stock of XYZ Company has a market price of $9.00. The price of the underlying stock is $36.00, and the strike price of the option is $30.00 per share. What is the Exercise Value of this Call Option? What is the Time Value of the Option?

Problem 2
The Exercise (Strike) Price on ABC Company's Option is $21.00, its Exercise Value is $23.00, and its Time Value is $7.00. What is the Market Value of the Option? What is the price of the underlying stock?

Problem 3
Nichols Corporation's value of operations is equal to $500 million after a recapitalization (the firm had no debt before the recap). It raised $200 million in new debt and used this to buy back stock. Nichols had no short-term investments before or after the recap. After the recap, wd = 40%. What is S (the value of equity after the recap)

Problem 4
Dye Trucking raised $150 million in new debt and used this to buy back stock. After the recap, Dye's stock price is $7.50. If Dye had 60 million shares of stock before the recap, how many shares does it have after the recap.

Problem 5
Company A can issue floating-rate debt at LIBOR + 1%, and it can issue fixed rate debt at 9%. Company B can issue floating-rate debt at LIBOR + 1.5%, and it can issue fixed-rate debt at 9.4%.

Suppose A issues floating-rate debt and B issues fixed-rate debt, after which they engage in the following swap: A will make a fixed 7.95% payment to B, and B will make a floating-rate payment equal to LIBOR to A.

What are the resulting net payments of A and B?

Problem 6
What is the implied interest rate yield on a Treasury Bond ($100,000) futures contract that settled at 100'24 (or 100 24/32)? If interest rates increased by 0.75%, what would be the contract's new value?

Assume that this is based on 20 Years, with an annual yield of 8%, with semi-annual payments.

Note : Please show all the calculation in excel using formula in cells if applied

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Solution Summary

The problem consists of mixed financial problems related to Financial Swaps, Options, Capital restructure and bond valuation. Related concepts are briefly explained along with the solution.

See Also This Related BrainMass Solution

Options, Futures and Derivatives- international currency

Find attached the Problem Requirement - Options, Futures & Derivatives.
PLEASE ENSURE TO PROVIDE DETAILED RESPONSES with Formulas and explanation & NOT STUDY GUIDE. Find attached the Assessment Additional file


Can you please provide the following as follows for Problem 1:
You will be required to calculate the risk characteristics of the Cheapest-to-Deliver (CTD) bonds and the bond futures from the information provided.

You may also wish to price FX options using the volatility data provided and so an Excel based FX Options calculator will be made available to you.

FX forwards can be valued using the data provided.

You may also wish to consider what other risks are present and what could be done about them.

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