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# bff5040tute-10answer - BKM Ch 22 Q13 a 120 x 1.06 = \$127.2...

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BKM Ch 22 Q13: a. 120 x 1.06 = \$127.2 b. The stock price falls to: 120 x (1 – 0.03) = \$116.4 The futures price falls to: 116.4 x 1.06 = \$123.384 The investor loses: (127.20 – 123.384) x 1,000 = \$3,816 c. The percentage loss is: \$3,816/\$12,000 = 0.318 = 31.8% BKM Ch 22 Q14: a. The initial futures price is F 0 = 1300 x (1 + 0.005 – 0.002) 12 = \$1,347.58 In one month, the futures price will be: F 0 = 1320 x (1 + 0.005 – 0.002) 11 = \$1,364.22 The increase in the futures price is 16.64, so the cash flow will be: 16.64 x \$250 = \$4,160 b. The holding period return is: \$4,160.00/\$13,000 = 0.3200 = 32% BKM Ch 22 Q16: The parity value of F is: 1,500 x (1 + 0.04 – 0.01) = 1,545 The actual futures price is 1,550, equal. Arbitrage Portfolio CF now CF in 1 year Short Index 1,500 S T (0.01 × 1,500) Buy Futures 0 S T 1,550 Lend 1,500 1,500 × 1.04 Total 0 -5 BKM Ch 22 CFA 1: a. The strategy that would take advantage of the arbitrage opportunity is a “reverse cash and carry.” A reverse cash and carry opportunity results when the following relationship does not hold true: F0 ≥ S0 (1+ C) If the futures price is less than the spot price plus the cost of carrying the goods to the futures delivery date, then an arbitrage opportunity exists. A trader would be able to sell the asset short, use the proceeds to lend at the prevailing interest rate, and then buy the asset for future delivery. At the future

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• Three '16
• Forward contract, BKM Ch

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