chapter 26 practice problems

chapter 26 practice problems - l. The buyer of a forward...

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Unformatted text preview: l. The buyer of a forward contract: A) will be taking delivery of the good(s) today at today's price. B) will be making delivery of the good(s) at a later date at that date's price. C) will be making delivery of the good(s) today at today’s price. will be taking delivery of the good(s) at a later date at pre-specified price. E) both a or d. Answer: D 2. The main difference between a forward contract and a cash transaction is: AL only the cash transaction creates an obligation to perform. i7B) ?a forward is performed at a later date while the cash transaction is performed "M‘l immediately. it? » “Kiri t“”t‘“3 i C) only one involves a deliverable instrument. D) neither allows for hedging. E) none of the above. Answer: B 3. You have taken a short position in a futures contract on corn at $2.60 per bushel. Over the next 5 days the contract settled at 2.52, 2.57, 2.62, 2.68, 2.70. You then decide to reverse your position in the futures market on the fifth day at close. What is the net amount you receive at thewegnd of 5 days? A) $2.70 k “$2.60 C) $2.80 D) $0.00 E) Must know the number of contracts Answer: B -, _ x it“. , . {xi/jam"; 4. You have taken a short position in a futures contract on corn at $2.60 per bushel. Over the next 5 days the contract settled at 2.52, 2.57, 2.62, 2.68, 2.70. Before you can reverse your position in the futures market on the fifth day you are notified to accept delivery. What will you receive on delivery and What is the net amount you receive in total? v.\_._, A) $2.60; $2.70 D) $2.60; $0.10 $2.70;-$0.10 B) $2.60; -$0.10 $2.70; $2.60 Answer: C a.) :m A, y» A" . ‘ i t,’ r 1, fl .1“. wk. a 2 « e w a . - ’C‘ m .. :r' r. ~ it... 3L3 ‘ a ' x 5. A potential disadvakfit'axgflemof forward contracts versus futures contracts is: A) the extra liquidity required to cover the potential outflows that occur prior to delivery gymm and caused by marking to market. {.13).} the incentive for a particular party to default. v” C) that the buyers and sellers don't know each other and never meet. D) all of the above. E) both a and c. Answer: B 7«:\ z i .l '1 1 .3: :1 to) ,gtxt.,.g“j3i.fle:9; 6. Two key features of futures contracts that make them more in demand than forward contracts are: futures are traded on exchanges and must be marked to the market. CB); futures contracts allow flexibility indelivery dates and provide a liquid market for 7” netting positions. ‘2 L H C) futures are marked to the market and allow delivery flexibility. D) futures are traded in liquid markets and are marked to the market. E) none of the above. ' . . a weft/if) . 7. Comparing long-term bonds w1th short-term bonds, long-term bonds are 330V” volatile and therefore experience mmgffiprice change compared with short-term bonds for the same interest rate shift. A) less; less B) less; more C) more; more D) more; less E) more; the same kai’ , :- {f .Watl‘b . 8. In percentage terms, higher coupon bonds experience a price change compared with lower coupon bonds of the same maturity given a change in yield to maturity. A) greater @smaller C) similar D) smaller or greater E) none of the above. 9. The dpration of a 15 year zero coupon bond priced at $182.70 is: (2:)le ,. r B) (fiJLé;a.)§"lr;;;n\ a; lakfkgcir 10:“ («a .imQAX C) 17.74. I L.) D) cannot determine without the interest rate. E) none of the above. 10. A financial institution has equity equal to one-tenth of its assets. If its asset duration is figiirrently equal to its liability duration, then to immunige, the needs,_to: decrease the duration of its assets. “K fi/Nyqj L: 13);,” 7:. ‘fiflxprk'i/ B) increase the duration of its assets. ‘V ,5; "7; 7m“ KW! C) decrease the duration of its liabilities. 1/2.- 60/“; .0. D) do nothing, i.e., keep the duration of its liabilities equal to the duration of its assets. Answer: A ll. Firm A is paying $750,000 in interest payments a year while Firm B is paying LIBOR plus 75 basis points on $10,000,000 loans. The current LIBOR rate is 6.5%. Firm A and B have agreed to swap interest payments, how much will paid to which Firm this year? A) $750,000 to Firm B. $25,000 to Firm B. B) $725,000 to Firm A. ' none of the above. C) $25,000 to Firm A. 4.... » s it 2 Ms 5 w WWW“‘~*"‘*""”“’f’ “ F m " . m. l2} Calculate the duration of a 4-year $1,000 face value bond, which pays 8% coupons annually throughout maturity and has a yield to maturity of 9%. 2" "0011 C57, 33 w “7 X [I l l {YO/{w ‘3’ 3 Li ‘lr ; $67—36? - my“ T3 U\~\I"€A:iwfl 5‘ l i ‘7 5361+ 2x5 (0753 + 3x M728 + $750? {577 a ...
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This note was uploaded on 12/16/2011 for the course ACSTC 371 taught by Professor Lisaporth during the Fall '11 term at Waterloo.

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chapter 26 practice problems - l. The buyer of a forward...

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