FM11_Ch_23_Tool_kit

# FM11_Ch_23_Tool_kit - Model Chapter 23 Tool Kit for...

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7905944a13b042ad9feb768399d535ad02cf3c82.xls Model Michael C. Ehrhardt Page 1 03/17/2011 8/3/2003 Chapter 23. Tool Kit for Derivatives and Risk Management SWAPS Antron Bosworth Floating rate: LIBOR + 1.00% 1.50% Fixed rate: 10.00% 10.40% Antron Bosworth Payment to lender: -LIBOR -1.00% -10.40% Payment to swap counterparty: -8.95% -LIBOR Payment from swap counterparty: +LIBOR 8.95% Net payment: -9.95% -LIBOR -1.45% HEDGING WITH FINANCIAL FUTURES Size of futures contract (dollars per contract) = \$100,000 Settle price on futures contract as quoted = 103 and 3 32nds Settle price on futures contract (% of par, decimal) = 103.09375% Settle price on futures contract (dollars) = \$103,093.75 Change in price from previous day as quoted = 0 and 11 32nds Change in price on futures contract (% of par, decimal) = 0.34375% Change in price on futures contract (dollars) = \$343.750 Open interest (number of outstanding contracts) = 119 Total value of outstanding contracts = \$12.3 million Implied Yield Settle price on futures contract (% of par, decimal) = 103.09375% Maturity of bond underlying futures contract = 20 Coupon rate on bond underlying futures contract = 6% N= 40 PV= -\$1,030.9375 PMT= \$30 FV= \$1,000 I= 2.8690% Implied annual yield = 5.7380% Previous Day's Implied Yield A derivative is a security whose values are determined by the market price or interest rate of some other asset. Derivatives are a primary aspect of risk management, because they offer financial planners and risk managers to hedge

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FM11_Ch_23_Tool_kit - Model Chapter 23 Tool Kit for...

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