Discount rate
NPV
IRR
8%
71.01 <- =B6+NPV(B1,B6:B16)
10.56% <- =IRR(B6:B16)
Year
0
1
2
3
4
5
6
7
8
9
10
Cash flow
-600
100
100
100
100
100
100
100
100
100
100
NPV>0
2. You just took a $10,000, five-year loan. Payments at the end of each
year are flat (equ
Discount rate
NPV
IRR
8%
#MACRO?
#MACRO?
Year
0
1
2
3
4
5
6
7
8
9
10
Cash flow
-600
100
100
100
100
100
100
100
100
100
100
2. You just took a $10,000, five-year loan. Payments at the end of each
year are flat (equal in every year) at an interest rate of
ANSWERS FOR TUTORIAL:
DETERMINATION of FORWARD and FUTURE PRICE
Problems:
1. (a) 10% per annum.
(b) R = 9.76% per annum.
(c) R = 9.57% per annum.
(d) R = 9.53% per annum.
2. R = 14.91% per annum.
3. The equivalent of interest with quarterly compounding is
TUTORIAL:
DETERMINATION of FORWARD and FUTURE PRICE
1. An investor receives $1,100 in one year in return for an investment of $1,000 now. Calculate the
percentage return per annum with
a. Annual compounding
b. Semiannual compounding
c. Monthly compounding
TUTORIAL 2: MECHANICS OF FUTURES AND FORWARDS MARKETS
1. Answer the following questions to understand the mechanics of future trading:
A. Suppose you call your broker and issue instructions to sell one July hogs contract. Describe what
will happen next.
B
TUTORIAL 2: MECHANICS OF FUTURES AND FORWARDS MARKETS
Problems:
1. An investor enters into two long July futures contracts on frozen orange juice. Each
contract is for delivery of 15,000 pounds. The current futures price is 160 cents per pound,
the initia
TUTORIAL 1: NATURE OF FORWARDS, FUTURES AND OPTIONS CONTRACTS
1. A cattle farmer expects to have 120,000 pounds of live cattle to sell in three months. The livecattle futures contract on the Chicago Mercantile Exchange is for delivery of 40,000 pounds of
Dear students,
15% QUIZ#1 is scheduled on September 18, 2012, Tuesday
It will cover lectures 1, 2 and 3 (find relevant chapters in the book)
Solve: tutorials 1, 2 and 3.
You can prepare one page (A4) cheat sheet with formulas. All formulas should be writt
DeterminationofForward
andFuturesPrices
Chapters 4.1, 4.2 and Chapter 5
1
AGENDA:
Short selling strategy;
Measuring interest rates;
Determination of forward price for assets:
that do not have an interim cash flow;
that have a known interim cash flow;
that
MechanicsofFutures
Markets
Chapter 2
Agenda:
1.
2.
3.
4.
Features of futures contracts;
Margins requirements;
Delivery and types of orders;
Futures vs. Forwards
FuturesContracts
A futures contract is an agreement that
has obligation to buy or sell an asse
Introduction to
Financial Derivatives
Chapter 1
AGENDA:
Derivatives and ways they are used;
Types of derivatives contracts:
1.
2.
1.
Futures
Forwards
Options
Simple examples of hedging, speculation and
arbitrage with derivatives.
What is a derivative?
A d
BS CORPOPATION
1.BS Corp. has a stock price P0 = 40. The firm has just paid a dividend
of $2,1 per share, and knowledgable
shareholders think that this dividend will grow by a rate of 7% per year.
Use the Gordon dividend model to
calculate the cost of equ