5 - THE UNIVERSITY OF HONG KONG FACULTY OF BUSINESS AND...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
1 *We will go through these questions during tutorial. THE UNIVERSITY OF HONG KONG FACULTY OF BUSINESS AND ECONOMICS FINA0301CDE - DERIVATIVES First Semester, 2009-2010 Tutorial 5 Problem Set – Chapter 7 Question 1* (Tutorial 4 Question 7: Forward Rate Agreement) Suppose that in order to hedge interest rate risk on your borrowing, you enter into an FRA that will guarantee a 6% effective annual interest rate for 1 year on $500,000. On the date you borrow the $500,000, the actual interest rate is 5%. Determine the dollar settlement of the FRA assuming (a) Settlement occurs on the date the loan is initiated. (b) Settlement occurs on the date the loan is repaid. Question 2* (Tutorial 4 Question 8: Zero-coupon Bond) Given the Zero-coupon bond prices as follow: Days to Maturity Bond Prices 90 0.99009 180 0.97943 270 0.96525 360 0.95238 Suppose you are the counterparty for a lender who enters into an FRA to hedge the lending rate on $10m for a 90-day loan commencing on day 270. What positions in
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 2

5 - THE UNIVERSITY OF HONG KONG FACULTY OF BUSINESS AND...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online