HW6solutions_fall11

HW6solutions_fall11 - 7 A ± ² ³ ´ µ ¶ ¸ ¹ º»¼ ½ º ¾ ± ¿ÀÁÀ ³ ´ ÃÁÄ ¶ ¸ ´ÄÅÄ ´ÄÄà ¾ ± ÆÁÀÇÈ 8 D ² ±

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Homework 6, FINA 471 Fall, 2011 1. D. F = 1785*e 0.05*0.75 + 2.5*e 0.05*0.75 + 2.5*e 0.05*0.5 + 2.5*e 0.05*0.25 = $1860.90. 2. D. F = 0.012982*e (0.04-0.02)*0.5 = 0.013112$/¥. 3. D. The forward exchange rate of 0.013085 $/ ¥ is too cheap, relative to the fair forward price obtained in the previous problem. An arbitrager should long the forward contract and synthetically create a short forward position (sell yen in the spot market). 4. B. r 91 = (100-97.75)/100/4*91/90 = 0.005688. 5. C. Since we want to protect ourselves against an interest rate rise, we will short $5 million worth of future contracts (i.e., 5 contracts). 6. C. Using the result of problem 4, interest payment = 5million*0.5688% = 28440.
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Unformatted text preview: 7. A. ± ² ³ ´ µ ¶· ¸ ¹ º»¼ ½ º ¾ ± ¿ÀÁÀ ³ ´ ÃÁÄ ¶· ¸ ´ÄÅÄ ´ÄÄà ¾ ± ÆÁÀÇÈ . 8. D. ² ± É ´ µ ¶· ¸ ¹ º»¼ ½ º ¾ ± ¿ÀÁÀÊ É ´ ÃÁÄ ¶· ¸ ´ÄÅÄ ´ÄÄà ¾ ± ÂÁËÊÈ 9. A. The future value of storage cost is 4.85 - 4.65*1.005 = $0.17675. The present value is 0.17675/1.005 = $0.17587. 10. B. The future value of storage cost at the end of the second month is 5.1 - 4.85*1.005 = $0.22575. The value at the beginning of the second month is 0.22575/1.005 = $0.22463....
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This note was uploaded on 01/16/2012 for the course FINA 442 taught by Professor Ms.etheridge during the Fall '11 term at South Carolina.

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