The S&P 500 Index price is $925.28 and its annualized dividend yield is 1.40%. LIBOR is 4.2%. How many futures contracts will you need to hedge a $25 million portfolio with a beta of 0.9 for one year?
(a) 105
(b) 120
(c) 80
(d) 95
Answer: d
Fin 402
- The spot price of the market index is $900. After 3 months the market index is priced at $920. The annual rate of interest on treasuries is 4.8% (0.4% per month). The premium on the long put, with an exercise price of $930, is $8.00. What is the profit or loss at expiration for the long put?
- For an option trading in the money, what is the likely impact on the binomial option price as the number of binomial steps is increased?
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- Using a binomial tree, what is the price of a $40 strike 6-month call option, using 3-month intervals as the time period? Assume the following data: S = $37.90, r = 5.0%, ? = 0.35
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- A stock is selling for $53.20. Interest rates are 6.0% and the returns on the stock have a standard deviation of 24.0%. What is the forecasted up movement in the stock over a 6-month interval?
- A stock is selling for $41.60. The strike price on a call, maturing in 6 months, is $45. The possible stock prices at the end of 6 months are $35.00 and $49.00. Interest rates are 5.0%. Given an underpriced option, what are the short sale proceeds in an arbitrage strategy?
- A stock is selling for $18.50. The strike price on a call, maturing in 6 months, is $20. The possible stock prices at the end of 6 months are $22.50 and $15.00. Interest rates are 6.0%. How much money would you borrow to create an arbitrage on a call trading for $2.00?
- A stock is selling for $32.70. The strike price on a call, maturing in 6 months, is $35. The possible stock prices at the end of 6 months are $39.50 and $28.40. If interest rates are 6.0%, what is the option price?
- Compute ? for the following call option. The stock is selling for $23.50. The strike price is $25. The possible stock prices at the end of 6 months are $27.25 and $21.75.
- A stock is currently selling for $22.00 per share. Ignoring interest, determine the intrinsic value of a call option should there exist equally probable stock prices of $25.00 and $23.00.
- Oil is selling at a spot price of $42.00 per barrel. Oil can be stored at a cost of $0.42 per barrel per month. The opportunity cost of capital is 7.2% per year (or 0.6% per month). What is the gain or loss realized by an oil refinery that floats its exposure and purchases oil on the spot market in two month at a price of $43.00 per barrel, instead of hedging with a forward contract?
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- The 6-month futures price for oil is $21 per barrel (or 50 cents per gallon). The 6-month futures prices for gasoline and heating oil are 80 cents and 69 cents, respectively. What is the gross margin on a simple 3-2-1 crack spread?
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- Nine-month gold futures are trading for $306 per ounce. The spot price is $295 per ounce. LIBOR during each of the upcoming 4 quarters is listed as 1.04%, 1.22%, 1.30%, and 1.35%, respectively. Calculate the 9-month lease rate on the futures contract.
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- Given a lease rate of 7.0% on the 24-month corn forward contract, what is the approximate potential arbitrage profit per contract?
- Which of the following terms most accurately describes the forward curve for soybeans over the next two years?
- If hog farmers expect a return of 8.0% on their investment in livestock, what is the approximate implied increase in pork belly commodity prices over the next 6 months?