HW5solutions_fall11

HW5solutions_fall11 - 7. B. The notional value of 8...

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Homework 5, FINA 471 Fall, 2011 1. B. F = 1350*e (0.015-0.025)*5/12 = 1344.39. 2. D. From problem 1, the no-arbitrage price is $1344.39. So the forward price of $1342 is too low, relative to the fair value. The arbitrager should long the forward at $1342, and create a short position in a synthetic forward by reverse cash and carry. The profit is 1344.39 – 1342 = 2.39. 3. C. F = 65*e 0.02*0.5 – 1.5*e 0.02*(0.5-0.25) – 3*e 0.02*(0.5-0.5) = $61.15. 4. D. δ = r – 1/T ln(F/S) = 0.03 – 1/0.5 ln(1335/1350) = 0.0523 = 5.23%. 5. A. r = δ + 1/T ln(F/S) = 0.03 +1/0.5 ln(1345/1350) = 0.0226 = 2.26%. 6. B. Profit of short position = (1360 – 1375.55)*250*8 = -$31100.
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Unformatted text preview: 7. B. The notional value of 8 contracts is 8*250*1360 = $2,720,000. 8. D. The initial margin is 2720000*0.1= $272,000. 9. C. The margin account balance will grow in 1 week to 272000e 0.03*1/52 = $272156.97. The maintenance margin is $272000*0.75 = $204,000. Let F be the future price in 1 week. We will get a margin call if 272156.97 + (1360 F)*250*8 204000. Solve this to get F (272156.97 - 204000)/2000 + 1360 = 1394.08. 10. C. The number of contracts is 100000000*1.3/(250*1360) = 382. The manager should short 382 contracts....
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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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