6.Based on the information given and assuming a notional principal of $10 million, what value should Lewis place on the 3 x 9 FRA at time of settlement? A) $38,000 paid from short to long. B) $37,218 paid from long to short. C) $19,000 paid from long to short. D) $19,000 paid from short to long. The correct answer was B) The value of the FRA at maturity is paid in cash. If interest rates increase then the party with the long position will receive a payment from the party with a short position. If interest rates decline the reverse will be true. The annualized 180-day loan rate is 4.96 percent. Given that annualized interest rates for a 180-day loan 90 days later are expected to drop to 4.2 percent, a cash payment will be made from the party with the long position to the party with the short position. The payment is given by:
The present value of the FRA at settlement is: 38,000 / [1+(.042 x 180/360)] = 38,000 / 1.021 = $37,218 7.Based on the information given, what initial price should Lewis recommend for a forward contract on Swiss Francs based on a discrete time calculation? A) $1.1552. B) $1.0053. C) $0.8656. D) $0.9947. The correct answer was C) The value of a forward currency contract is given by:
Where F and S are quoted in domestic currency per unit of foreign currency. Substituting:
8.What is the value of a 6.00 percent 1x4 (30 days x 120 days) forward rate agreement (FRA) with a principal amount of $2,000,000, 10 days after initiation if L10(110) is 6.15 percent and L10(20) is 6.05 percent? A) $700.00. B) $767.40. C) $826.46. D) $745.76. The correct answer was D) The current 90-day forward rate at the settlement date, 20 days from now is:
([1+ (0.0615 x 110/360)]/[1+ (0.0605 x 20/360)] – 1) x 360/90 = 0.061517 The interest difference on a $2 million, 90-day loan made 20 days from now at the above rate compared to the FRA rate of 6.0% is:
[(0.061517 x 90/360) – (0.060 x 90/360)] x 2,000,000 = $758.50 Discount this amount at the current 110-day rate:
758.50/[1+ (0.0615 x 110/360)] = $745.76 9.30 days ago, J. Klein took a short position in a $10 million 90-day forward rate agreement (FRA) based on the 90-day London Interbank Offered Rate (LIBOR) and priced at 5 percent. The current LIBOR curve is: § 30-day = 4.8% § 60-day = 5.0% § 90-day = 5.1% § 120-day = 5.2% § 150-day = 5.4% The current value of the FRA, to the short, is closest to: A) -$15,495. B) -$15,280. C) -$15,154. D) -$15,331. The correct answer was C) FRAs are entered into to hedge against interest rate risk. A person would buy a FRA anticipating an increase in interest rates. If interest rates increase more than the rate agreed upon in the FRA (5% in this case) then the long position is owed a payment from the short position. Step 1: Find the forward 90-day LIBOR 60-days from now. [(1 + 0.054(150/360))/(1 + 0.05(60/360)) – 1](360/90) = 0.056198. Since projected interest rates at the end of the FRA have increased to approximately 5.6%, which is above the contracted rate of 5%, the short position currently owes the long position. Step 2: Find the interest differential between a loan at the projected forward rate and a loan at the forward contract rate. (0.056198 - 0.05) × 90/360 = 0.0015495 × 10,000,000 = $15,495 Step 3: Find the present value of this amount ‘payable’ 90 days after contract expiration (or 60 + 90 = 150 days from now) and note once again that the short (who must ‘deliver’ the loan at the forward contract rate) loses because the forward 90-day LIBOR of 5.6198% is greater than the contract rate of 5%. [15,495/(1 + 0.054(150/360))] = $15,154.03 This is the negative value to the short. 10.Calculate the price of a 200-day forward contract on an 8 percent U.S. Treasury bond with a spot price of $1,310. The bond has just paid a coupon and will make another coupon payment in 150 days. The annual risk-free rate is 5 percent. A) $1,270.79. B) $1,333.50. C) $1,305.22. D) $1,345.49. The correct answer was C) Coupon = (1,000 × 0.08) / 2 = $40.00 Present value of coupon payment = $40.00 / 1.05150/365 = $39.21 Forward price on the fixed income security = ($1,310 - $39.21) × (1.05)200/365 = $1,305.22
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发表于 2008-4-14 15:29
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