Risk Management Solutions 3

Risk Management Solutions 3 - bills had a yield of 1.80% (a...

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Old Exam Questions - Risk Management - Solutions Page 3 of 4 Pages Value of the futures contract on the index = 250 + 9.50 = 259.50 7. Assume that in December the cash price for soybean meal is $150 per ton. You decide to hedge your expected June harvest by selling 1,000 July futures contracts at $160 per ton. Assume that in June, when you lift the hedge, the cash price is $165 per ton and the July futures are selling for $180 per ton. What will be the effective price per ton that you will have earned on your crop? A. $135 * B. $145 C. $155 D. $165 E. None of the above. Sell futures for $160 and buy back at $180, so lose $20. Cash Price $165 Minus loss on Futures - 20 Effective Price $145 8. Assume that in April you knew that you would have $1,000,000 in August to invest in 90-day T-bills. At that time, 90-day cash T-bills had a yield of 1.60%, 120-day cash T-
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Unformatted text preview: bills had a yield of 1.80% (a spread of +20 basis points), and the September 90-day T-bill futures contract had a yield of 2.30%. You decided to hedge by purchasing the September futures contract, knowing that you would take off the hedge in August and purchase 90-day cash T-bills. Assume that it is now August and the spread between 3-month and 4-month T-bills has changed to -15 basis points, such that 90-day cash T-bills have a yield of 2.50% and 120-day cash T-bills (as well as the September futures contract) have a yield of 2.35%. Based on this, determine your effective yield from this hedge. A. 2.60% B. 2.75% * C. 2.45% D. 2.90% E. 2.30% Cash 90-day T-bills = 2.50% Cash 120-day T-bills = 2.35% September contract = 2.35% Futures Value at Sale (2.35%) $994,125 Value at Purchase (2.30%) 994,250 Loss on Transaction - $ 125 90-Day Cash T-Bills...
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This note was uploaded on 07/13/2011 for the course FIN 4414 taught by Professor Staff during the Spring '08 term at University of Florida.

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