FIU FIN4486 Homework 2 Chapters 3 and 5

An investor receives $1084.0 in 2.0 weeks for an initial investment of $1035.0. What is annual percentage return with continuous compounding?

Suppose you enter into a 4.0 month forward contract on one ounce of silver when the spot price of silver is $9.0 per ounce and the risk-free interest rate is 6.5 percent continuously compounded. What is the forward price?

Pixar stock is expected to pay a single $1.7 dividend in 2.0 months. Suppose you enter into a 7.0 month forward contract to buy one share of Pixar stock when the share price is $40.4 per and the risk-free interest rate is 6.25 percent continuously compounded. What is the forward price?

The S&P 500 index has a dividend yield of 4.0 percent. Suppose you enter into a 11.0 month forward contract to buy S&P 500 index . The current value of the index equals $1126.0 and the risk-free interest rate is 10.0 percent continuously compounded. What is the forward price?

The interest rate in Great Britain is 5.0 percent per year and the interest rate in the USA is 6.0 percent. If the spot exchange rate is 1.3 dollars per pound, what is the price of a 11 month forward contract to buy the British pound?

Mogul oil company will sell 7000 barrels of oil in 3 months. Suppose Mogul hedges the risk by selling futures on 7000 barrels of oil. The current oil futures price is $15.6 dollars per barrel. If in 3 months the spot price of oil is $15.0 and the futures price is $15.9 per barrel, what is Mogul's effective price of oil per barrel?

Mogul oil company will sell 9000 barrels of oil in 2 months. Suppose Mogul hedges the risk by selling futures on 7200.0 barrels of oil. The current oil futures price is $21.1 dollars per barrel. If in 2 months the spot price of oil is $20.5 and the futures price is $21.8 per barrel, what is Mogul's gain on the futures transaction and effective price per barrel?

Generous Dynamics maintains an inventory of 4000 ounces of gold. The company is interested in protecting the inventory against daily price changes. The correlation of the daily change in the spot and futures price is 0.4, the standard deviation of the daily spot price change is 26 percent, and the standard deviation of the daily change in the futures price is 14 percent. Futures contract size is 1000 ounces. How many contracts should GD buy or sell to hedge its inventory?

Modern Portfolio Managers (MPM) hold a 19 million dollar portfolio of stocks with a beta of 1.25 measured with respect to the S&P 500 index. The current value of the index is 955 and the current value of a futures contract on the index is 1018.0. The multiplier on the futures equals $250. If MPM wishes to hedge the systematic risk in its portfolio, how many contracts must it buy or sell?

Modern Portfolio Managers (MPM) hold a 7 million dollar portfolio of stocks with a beta of 0.85 measured with respect to the S&P 500 index. The current value of the index is 1039 and the current value of a futures contract on the index is 1084.7. The multiplier on the futures equals $250. If MPM wishes to increase its systematic risk in its portfolio to 1.65, how many contracts must it buy or sell?