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Suppose that: S&P 500 index is trading at 2000; index stocks do not pay any dividends; and you can borrow and lend at 5% per annum.
You have an index portfolio worth $20 million.
An index futures contract with a multiplier of 100 matures in a year – this means one futures contract represents an index basket of stocks with a market value of 100 times the index value.
How will you fully hedge your portfolio for a one year horizon?
What’s your return if futures are trading at 2100? 2150? 2050?
Suppose, you want to hedge only for one month.
Do you know what your return will be if index futures are trading at 2100? 2150? 2050?
Suppose your portfolio is only $300,000. Can you hedge perfectly?
Suppose your portfolio is different from the index basket of stocks – what is the quality of your hedge?
We want to buy a 30 year, 5% bond, but we plan to sell it in 4 years. We estimate that the ytm at that time will be 7%. The market rates are 4% presently. What should we pay for the bond now? If this bond is a municipal one, what is the equivalent yi..
You are given the following information: at t = 0, the price of a 10?year zero coupon bond with FV = $10,000 is $7,000; the price of a 3?year zero coupon bond with FV = $5,000 is $4,300; f3,12 = 6%. A bank is offering the following product: What is t..
Interest is paid annually, the bonds have a $1,000 par value, and the coupon interest rate is 10%. The bonds sell at a price of $850. What is their yield to maturity?
Sqeekers Co. issued a 15yrs bonds a year ago at a coupon rate of 4.1 percent. The bonds make semi annual payments and have a par value of $1000. If the YTM on these bonds is 4.5 percent what is the current bond price?
What will the cost of the vehicle be at the end of three years and you want to save a equal amount at the end of each month for the next three years in order to pay cash for the new vehicle.
The ___ of a given outcome is its chance of occurring.
A proposed new project has projected sales of $85K, costs of $43K, and depreciation expense of $3K. All figures are annual figures. The tax rate is 35%. Calculate annual operating CF for this project. a. $27,300 b. $14,700 c. $42,000 d. $28,350 10. c..
Asset W has an expected return of 16.0 percent and a beta of 1.45. If the risk-free rate is 3.2 percent, what is the market risk premium?
A machine cost $15000 new has a 7 year life and a salvage value equal to 10% of its original cost. The annual maintenance cost of this machine is $500 the first year, with an increase of $100 each year hereafter; the annual operating cost is $400 per..
1. Air Atlantic has been offered a 3 year-old jet airlines under a 12-year arrangement. The lease requires AA to make annual lease payments of $500,000 beginning of each of the next 12 years. Determine the present value of the lease percent.
Antiques “R” Us is a mature manufacturing firm. The company plans to pay an $8 dividend next year, but management expects to reduce the payout by 7 percent per year, indefinitely. If you require a 13 percent return on this stock, what will you pay fo..
Kinkead Inc. forecasts that its free cash flow in the coming year, i.e., at t = 1, will be -$10 million, but its FCF at t = 2 will be $20 million. After Year 2, FCF is expected to grow at a constant rate of 4% forever. If the weighted average cost of..
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