FINANCE- An interest rate is 11.75% per annum expressed with continuous compounding

QUESTION

1.
An interest rate is 11.75% per annum
expressed with continuous compounding. What is the equivalent rate with
semiannual compounding? (margin of error: +/- 0.01%)
2.
On 2/15/2014, a 2-year long forward
contract, expiring 2/15/2016, on a non-dividend-paying stock was entered into
when the stock price was $139 and the risk-free interest rate was 10.1% per
annum with continuous compounding. 1 year later, on 2/15/2015, the price of the
stock becomes $146 and the risk-free rate is 9.7%. What is the value of this long
forward contract on 2/15/2015?
3.
Which option position is associated
with an obligation to sell an asset at a specified price?
4.
A bank wants to lock in the 3-month
interest rate starting on June 20, 2017. Currently, 6/2017 Eurodollar futures
price is 97.64 and 9/2017 Eurodollar futures price is 97.55. What is the lock
in 3-month interest rate between 6/2017 and 9/2017? (margin of error: +/-
0.01%)
5.
An investor takes a
long position of 10 gold futures contract. The contract size is 100 ounces. The
gold futures price is $1,500 per ounce and the initial margin is $60 per
ounce. Suppose the futures price becomes $1,532 next month and he sells to
close the futures. Calculate the rate of return in percentage upto 2 decimal
points such as 12.34%.
6.
You entered into a short silver
forward contract months ago, where you agreed to sell 500 ounces of silver at
$20 per ounce at the end of the year. At maturity, the silver price becomes
$17.56 per ounce. Calculate the payoff. If negative, report a minus number.
7.
Suppose now you are certain that the
3-month LIBOR in future will be much higher than what the market expects. Which
strategy to use?

Long Eurodollar futures

Short Eurodollar futures

Long Fed Funds futures

Short Fed Funds futures

a.

8.
Which of the following is a false statement?

When one writes a put option, he is taking a short position of
the put option.

When options are exercised, the company does not issue new
shares of its own stock.

If one holds an American option, he can exercise the option at
any time before expiration.

Exercising an in-the-money option always results in a
profit.

9.
T/F Forward contracts have zero values.
10. A bank finds that its assets are not matched with its
liabilities. It is taking fixed rate deposits and making floating-rate loans.
What can the bank do to offset the risk?
11. On 6/5/2014, an investor buys 7 gold futures contracts, when the
futures price is $1,400 per ounce. The contract size is 100 ounces.The next
day, the futures price becomes $1,397.90. Calculate the daily gain.
12. Which is a good
signal to purchase U.S. Treasury bonds?

increase in GDP growth rate forecast

increase in year-ahead inflation forecast

increase in real yield (yield-inflation rate)

increase in S&P500 earnings/ 30-yr Treasury yield

13. A stock is expected to pay a dividend of $2.10 per share in 1
months and in 4 months. The current stock price is $58, and the risk-free
interest rate is 9% per annum with continuous compounding for all maturities.
An investor has just taken a long position in a 5-month forward contract on the
stock. Calculate the forward price.
14. T/F Bond price is equal to the par value.
15. ____________ is
tranches created from a pool of mezzanine tranches.

ABS

ABS CDO

Synthetic CDO

Credit Default Swap

16. t/f Bear Stearns was taken over by J.P. Morgan in the 2008
financial crisis.
17. Calculate the present value of $100 in 7 years using 9.7%
interest rate with continuous compounding.
18. On July 1, an investor holds 50,000 shares of a certain stock.
The market price is $28 per share. The investor is interested in hedging
against movements in the market over the next month and decides to use the
September Mini S&P 500 futures contract. The index futures price is 2,188
and one contract is for delivery of $50 times the index. The beta of the stock
is 1.2. How many futures contract does he have to purchase? If it’s a short
position, report a negative number.
19. Suppose an investor
entered into a long forward contract and also entered into a long futures
contract. Which statement is true?

Both the delivery price of the forward contract and the futures
price change every day.

Neither the delivery price of the forward contract or the
futures price changes every day.

The delivery price of the forward contract changes every day but
the futures price does not.

The futures price changes every day but the delivery price of
the forward contract does not.

20. The price of a
stock is $25 and the price of a three-month call option on the stock with a $27
strike is $2.50. Suppose a trader has $2,500 to invest and is trying to choose
between buying 1,000 options (10 contracts) or 100 shares of stock. How high
does the stock price have to rise for an investment in options to be as
profitable as an investment in the stock?

$26

$28

$30

$40

21. It is April and a trader buys 100 September put options with a
strike price of $20. The stock price is $17.06 and the option price is
$5.93.
At the expiration, the stock price becomes $18.58. Calculate the
option profit to the trader.
22. t/f The delivery price of an existing forward contract changes
every trading day.
23. Suppose you are
managing a stock portfolio with a beta of 1.2. If you want to reduce the beta
of this portfolio, which action should you take?

Short stock index futures

Long stock index futures

Buy more stocks

Short Eurodollar futures

24. A company enters into a long futures contract to buy 200 ounces
of gold for $1,216 per ounce. The initial margin is $4,000 and the maintenance
margin is $1,000. What gold futures price per ounce will trigger a margin call?
(margin of error: +/- $1)
25. Suppose you
invested heavily in XYZ stock. If you want to hedge against the stock price
decline in the near future, which action should you take?

Buy XYZ call options

Buy XYZ put options

Write XYZ call options

Write XYZ put options

ANSWER:

REQUEST HELP FROM A TUTOR