What position should it take in the zero coupon bonds

Assignment Help Financial Management

Reference no: EM131909877

1. A US firm expects to receive £600,000 in payment from a customer on March 31. What position should the firm take if it wants to hedge the risk associated with this payment

a. using a forward contract?

b. using futures contracts on the Chicago Mercantile Exchange?

c. using an OTC option?

2. A manufacturer uses 600,000 pounds ounces of copper in its products every six months. How can it hedge the risk associated with price of this input over the next 3 years

a. if it uses a swap contract?

b. i. in a strip hedge?

ii. in a stack and roll?

c. using OTC option(s)?

3. A financial institution has a portfolio of bonds with a face value of $20 million. The bonds have an average maturity of 8 years and an average annual coupon of 4.25%.

The yield to maturity on the portfolio is 4.75%. The financial institution wants to use 5 year zero coupon bonds to hedge the interest rate risk associated with the portfolio. What position should it take in the zero coupon bonds? (Assume the zero coupon bonds also have a yield to maturity of 4.75%.)

4. A company with a portfolio of stocks worth $85 million and a portfolio beta of 1.15 plans to use the CME September futures contract on the S&P 500 to change the beta of the portfolio. The index futures price is currently 2279.70 and each contract is on $250 times the index.

a. What position should the company take to minimize the portfolio's risk relative to the market?

b. What position should the company take to reduce the beta of the portfolio from 1.15 to 0.75?

The company should take a short position

c. What position should the company take to increase the beta of the portfolio from 1.15 to 1.65?

5. If monthly prices of CPOS and QINV and of silver are as indicated in the file "assignment 4 data". (Stock prices are on a per share basis and silver prices are in $ per troy ounce).

a. What forward position (size and long or short) should the manager of a portfolio that holds 150,000 shares of CPOS take to minimize the portfolio's risk to changes in silver prices?

b. If each silver futures contract offered on CME covers 5000 troy ounces, what futures position should the portfolio manager from a take (number of contracts and long or short) to minimize the portfolio's risk to changes in silver prices?

c. What forward position (size and long or short) should an investor that holds 30,000 shares of QINV take to minimize the investment's risk to changes in silver prices?

d. If each silver futures contract offered on CME covers 5000 troy ounces, what futures position should the investor from part c take (number of contracts and long or short) to minimize the portfolio's risk to changes in silver prices?

e. How much total risk of the portfolio can the manager expect to eliminate from the hedging strategy indicated.

Reference no: EM131909877

Questions Cloud

What is the cost of carrying inventory : A company produces to a seasonal demand, with the forecast for the next 12 months as given below. The current labor force can produce 500 units per month.

What is the tax base of accounts receivable : During the year it recorded a bad debt expense of $123 and wrote-off bad debts of $148. What is the tax base of accounts receivable at the end of the year

How each layer of suite represents the communication flow : describe how each layer of the Model/Suite represents the communication flow between organizational levels and across departments/division of an actual hierarch

Prepare whatever closing entries appropriate for accounts : December 31 balances for selected accounts of the Chaney Company are presented. Prepare whatever closing entries are appropriate for the accounts above

What position should it take in the zero coupon bonds : The bonds have an average maturity of 8 years and an average annual coupon of 4.25%.

What are the pros and cons of each option : Analyze these options from the standpoint of an aggregate planning problem. What are the pros and cons of each option?

Calculates the net pay for a factory worker : Write an interactive Java payroll application that calculates the net pay for a factory worker. The program prompts user for worker name and skill level.

What is the total cost over the planning horizon : What is the total cost over the 12-day planning horizon if the regular workforce of 10 employees and only part-time workers are used? No overtime is used?

What would be the value of the investment : The interest rate in Great Britain is .32 percent per month. The spot exchange rate is £.639, and the three-month forward rate is £.642.

User Account

All Pages