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CH14 - CHAPTER 14 1 The open interest includes Longs Bob...

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CHAPTER 14 1. The open interest includes: Longs Bob 15 contracts Lois 5 contracts Shorts Bill 10 contracts Helen 10 contracts Determine the new open interest under the following assumptions: (a) Bill goes long 1 contract and Gene shorts 1 contract. (b) Bill goes long 1 contract and Bob shorts 1 contract. a. Longs Shorts Bob 15 Bill 9 Lois 5 Helen 10 Gene 1 20 20 b. Longs Shorts Bob 14 Bill 9 Lois 5 Helen 10 19 19 4. Suppose you go long in gold futures at $300 per ounce. Your broker requires you to put up 5% of this price as collateral. The net day gold futures settle at $320. Compute the gain as a percent of your equity in the position. What is the general relationship between the percent change in the investor’s equity and the percent change in the futures price? % change equity = down put % underlying change % = % 3 133.3 = 1.33 = .05 0 300 300 - 320
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5. Assume the following information about the futures price for gold: Delivery dates (number of years into future) 1 2 3 Current price of futures contract per ounce of gold $300 $350 $400 If the current spot price of gold is $260, determine spot interest rates for periods 1, 2, and 3, and forward interest rates for periods 2 and 3, assuming no marking-to-market and no storage or transactions costs. a. Delivery date = 1 300 = 260(1 + R 0,1 ); R 0,1 = 0.1538 = 15.38% b. Delivery date = 2 350 = 260(1 + R 0,2 ) 2 ; R 0,2 = 0.1602 f 0,2 = 0.1666 = 16.67% c. Delivery date = 3 400 = 260(1 + R 0,3 ) 3 ; R 0,3 = 0.1544 f 0,3 = 0.1429 = 14.29% 6. Assume no marking-to-market or storage costs. The spot price of gold is $300 and the futures price for delivery in 1 year is $360.
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