This preview shows pages 1–3. Sign up to view the full content.
This preview has intentionally blurred sections. Sign up to view the full version.View Full Document
Unformatted text preview: and the resulting initial margin dollars from a. (Refer to Future Prices in Wall Street) 3. On March 17 an investment banking house agreed to underwrite $1,000,000 of MGIC's 30 year 16% mortgage-backed bonds at 98 U to yield 17.2%. The actual transfer will take place on March 31 . The cash market price of a similar issue on March 17 was 98 5/8 (yielding 17%). On March 24 , the cash market price of that issue was 98 1/4 . a) If the investment banker decides to hedge its underwriting transaction on March 24, what does it think will happen to prices on mortgage backed bonds in the next week? b) How could it hedge in the GNMA futures market? c) What kind of hedge is this? d) If it traded a GNMA December contract at 91-04 on March 24 and it can only sell the MGIC bonds it buys on March 31 for 97 3/4 , what must the December contract be priced at on March 31 to create a perfect hedge (ignore transactions costs)?...
View Full Document
This note was uploaded on 07/09/2011 for the course FIN 4504 taught by Professor Banko during the Summer '08 term at University of Florida.
- Summer '08