Description

Questions

1. What is the difference between the forward price and the value of a forward contract?
2. The spot price of oil is $80 per barrel and the cost of storing a barrel of oil for one year is $3, payable at the end of the year. The risk-free interest rate is 5% per annum, continuously compounded. What is an upper bound for the one-year futures price of oil?
3. Companies A and B have been offered the following rates per annum on a $20 million five-year loan:
4. Suppose that you enter into a six-month forward contract on a non-dividend-paying stock when the stock price is $30 and the risk-free interest rate (with continuous compounding) is 12% per annum. What is the forward price?
5. It is January 9, 2015. The price of a Treasury bond with a 12% coupon that matures on October 12, 2030, is quoted as 102-07. What is the cash price?
6. Suppose that the Treasury bond futures price is 101-12. Which of the following four bonds is cheapest to deliver?
7. Suppose that it is February 20 and a treasurer realizes that on July 17 the company will have to issue $5 million of commercial paper with a maturity of 180 days. If the paper were issued today, the company would realize $4,820,000. (In other words, the company would receive $4,820,000 for its paper and have to redeem it at $5,000,000 in 180 days’ time.) The September Eurodollar futures price is quoted as 92.00. How should the treasurer hedge the company’s exposure?