1answer.
Ask question
Login Signup
Ask question
All categories
  • English
  • Mathematics
  • Social Studies
  • Business
  • History
  • Health
  • Geography
  • Biology
  • Physics
  • Chemistry
  • Computers and Technology
  • Arts
  • World Languages
  • Spanish
  • French
  • German
  • Advanced Placement (AP)
  • SAT
  • Medicine
  • Law
  • Engineering
Tatiana [17]
3 years ago
11

Brad expects interest rates to increase and purchases a put option on Treasury bond futures with an exercise price of 97-00. The

premium paid for the put option is 3-00. Just prior to the expiration date, the price of the Treasury bond futures contract is valued at 89-00. Brad exercises the option and closes out the position by purchasing an identical futures contract. Brad's net gain from this speculative strategy is $____, and his return on his investment is about _______ percent.
Business
1 answer:
ale4655 [162]3 years ago
5 0

Answer: Net Gain $5,000

Return on Investment = 167%

Explanation:

Profits are made on Puts if the spot price (current price) is less than the exercise price. Which is why the equation is such,

Profit equation of put option = Max ( exercise price - spot price, 0) - Premium paid.

The formula shows that there is no profit if the spot price climbs higher than the Exercise price as the option will not be exercised. In other words of the spot price is higher than the Exercise price, the option will not be exercised hence $0 profit. If the Exercise price is higher though then it will be exercised and the gain will be the exercise price minus the spot price.

Using that formula his gain was,

= 97 - 89 - 3

= $5

Treasury bond futures contracts are usually sold at a minimum of 1,000 bonds so assuming Brad got 1 then his gain would be,

= 5 * 1,000

= $5,000

His return on investment would be,

= Net profit / Initial investment

Bear in mind that his Net Investment would be the premium times the number of bonds

= 1,000 * 3

= $3,000

Return on Investment = 5,000/3,000

Return on Investment = 167%

You might be interested in
On October 1, 2015, Zircon Jewelry Company accepted a 4-month, 10% note for $2,400 in settlement of an overdue account receivabl
Whitepunk [10]

Answer:

Explanation:

The journal entry is shown below:

Cash A/c Dr $2,480

         To Interest receivable $60

         To Interest revenue $20

         To Note receivable $2,400

(Being the collection of funds is recorded)

The computation of interest receivable is shown below:

= Principal × rate of interest × number of months ÷ (total number of months in a year)  

= $2,400 × 10% × (3 months ÷ 12 months)

= $60

And for interest revenue would be

= Principal × rate of interest × number of months ÷ (total number of months in a year)  

= $2,400 × 10% × (1 months ÷ 12 months)

= $20

7 0
3 years ago
Frank age 63 is single and provided all of the support for his daughter Anna age 24 and her son Marvin age 6. Neither Anna nor M
allsm [11]

Frank cannot claim Anna or Marvin as a dependent.

Explanation:

Because Frank gives Anna and Marvin every support, support tests are straightforward.

Anna earns revenue in excess of $4200 and can not therefore be requested as dependent. In fact, Marvin does not stay with Frank and can not therefore be stated as dependent.

The income tax credit, EITC or EIC is a bonus to low- and moderate-income employers. To apply, you must fulfill certain criteria and file a tax report, even if you are not obliged to pay a bill. The level of tax you pay is lowered by the EITC and a refund is probable.

3 0
3 years ago
Will make you BRAINLIEST!
finlep [7]

Answer:

The recent loss of 440 manufacturing jobs at Ford Australia has generated a lot of debate about the long-term viability of the Australian car industry, and manufacturing in general. This debate has included arguments that manufacturing is important and needs more government support. It has also seen some commentators argue that Australian’s have no right to expect jobs in manufacturing.

While most of this debate has focused on the automotive manufacturing sector, there is a wider question that needs to be answered. This relates to the issue of whether it is feasible for an advanced economy to grow and prosper without a manufacturing sector?

Explanation:

3 0
3 years ago
Private placements can be advantageous, compared to public issue, because: I. Private placements are cheaper to market than publ
Maurinko [17]

Answer:

Private placements

Explanation:

private placements are cheaper to market than public issues

8 0
2 years ago
Managing economic exposure is generally perceived to be ____ managing transaction exposure. a. more difficult than b. less diffi
Anit [1.1K]

Answer:

the correct answer is a. more difficult than

Explanation:

Unlike Transaction exposure, economic exposure is difficult to predict and difficult to mitigate in an event of occurence, thus making it harder to manage than transaction exposure.

This is mainly because economic exposure can happen due to various macro economic factors and international political incidents.

6 0
2 years ago
Read 2 more answers
Other questions:
  • Determine which of the following expressions can be factored to (y – 4)(y – 7).
    9·1 answer
  • The basic difference between a good and a service is that a good
    10·2 answers
  • A law firm received $1600 cash for legal services to be rendered in the future. The full amount was credited to the liability ac
    13·1 answer
  • The export-import bank ____. is an international financial institution that provides loans for capital programs provides finance
    11·1 answer
  • The kinked-demand curve of an oligopolist is based on the assumption that
    7·1 answer
  • In their battle for chocolate lovers, Godiva and Hershey's must divide the population into different categories of consumers, fo
    15·1 answer
  • The following lots of Commodity D were available for sale during the year. Use this information to answer the questions that fol
    9·1 answer
  • The U.S. GAAP lower of cost or market rule for inventories may be applied to total inventory, to groups of similar items, or to
    8·1 answer
  • Strong global competition can result in ____ in the United States.
    5·2 answers
  • As reported by the Bureau of Labor Statistics, the CPI for Airfare in 2263 was 586.1 (using a base year of 1914 = 100). The CPI
    5·1 answer
Add answer
Login
Not registered? Fast signup
Signup
Login Signup
Ask question!