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Aleks [24]
3 years ago
5

An FI has a $100 million portfolio of six-year Eurodollar bonds that have an 8 percent coupon. The bonds are trading at par and

have a duration of five years. The FI wishes to hedge the portfolio with T-bond options that have a delta of −0.625. The underlying long-term Treasury bonds for the option have a duration of 10.1 years and trade at a market value of $96,157 per $100,000 of par value. Each put option has a premium of $3.25 per $100 of face value. a. How many bond put options are necessary to hedge the bond portfolio? b. If interest rates increase\
Business
1 answer:
PilotLPTM [1.2K]3 years ago
8 0

Answer:

A. 823.74

B.$4,614,028.00 gain

C.-$4,629,629.63

D.$2,678,000

Explanation:

a.

Np= Bond Portfolio Value/δ*B*D

=$100,000,000/-0.625*-10.1*$96,157

=823.74

Approximately 824 Contract

b.

A $100,000 20-year, eight percent bond selling at $96,157 implies a yield of 8.4 percent.

∆P = ∆p * Np= 824 * -0.625 * -10.1/1.084 * $96,157 * 0.01 = $4,614,028.00 gain

c.

∆PVBond= -5 * .01/1.08 * $100,000,000 = -$4,629,629.63

d.

The price quote of $3.25 is per $100 of face value. Hence the cost of one put contract will be $3,250 while the cost of the hedge

= 824 contracts * $3,250 per contract

= $2,678,000.

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f foreign investmentforeign investment fell by​ 100%, it would be cut in half.​ Thus, a decrease of​ 200% means that it would be
Sonja [21]

Answer:

if foreign investment fell by 100% it would be totally eliminated, so it not possible for it  to fall by more than 100%

Explanation:

Since in the question it is given that reduction of the western investment for the third world countries consist that foreign investment falls by 350% for the year 1990s

So if we go through the options, the wrong statement is the last one as it shows that the foreign investment fall by 100% i.e to be fully eliminated

Hence the other options are wrong

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madreJ [45]

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B. Thanks can have collection agencies seize part of the borrowers income

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Leila is giving a speech about a new café that recently opened near her college campus. Her audience consists of her fellow clas
Hitman42 [59]

Answer: Discussing about the services and inexpensive items in the menu.

Explanation: In the given case, Leila's target customers are the students in college campus. The college students do not have a lot of money to spend. Therefore, she should inform the audience about the inexpensive items in the menu that they can purchase.

She can also persuade them by telling them the services provided by cafe. The nearness of the cafe from the campus could save time of the students, thus it could be a good point to attract the students.

8 0
3 years ago
The brooks' paid-off property sold for $247,600. what will they net after paying a 7.5ommission to their broker?
Ronch [10]

They will pay net $229,030 after paying a 7.5% commission to their broker.

<h3>What is commission?</h3>
  • Commissions are a type of variable-pay compensation for provided services or sold goods.
  • Commissions are a typical method of encouraging and rewarding salespeople. It is also possible to create commissions to promote particular sales behaviors.
  • For instance, when offering significant discounts, commissions might be decreased.
  • When you buy, you normally pay a commission, and when you sell, you typically pay another commission. Investment commissions are not regarded by the IRS as a tax-deductible item.
  • Instead, the commission is included in the cost basis of the investment, giving you a small tax break.
<h3>Calculation of net payment:</h3>

= 100% - 7.5%

= 92.5%

= $247,600 x 92.5%

= $229,030

Hence, they will pay net $229,030 after paying a 7.5% commission to their broker.

Learn more about commision here:

brainly.com/question/20987196

#SPJ4

3 0
1 year ago
7. Two farmers, A and B, each apply 100 tons of manure on their fields. To reduce manure runoff, the government has decided to r
valentinak56 [21]

Answer:

Explanation:

1) The total cost of reducing runoff if the farmers are not allowed to trade permits is:

total loss = farmer A' loss + farmer B's loss

where:

  • farmer A's loss = (100 - 50) x $25 = $1,250
  • farmer B's loss = (100 - 50) x $50 = $2,500

total loss = $1,250 + $2,500 = $3,750

2) The total cost of reducing runoff if the farmers are allowed to trade permits is:

Since farmer A will be willing to sell his permits to farmer B for a price that is ≥ $25 and ≤ $50, the total cost of reducing runoff is $2,500.

If farmer A sells his runoff permit at a price higher than $25 his costs will decrease but farmer B's costs will increase, so any gain due to price change is offset by the other farmer's loss.  

8 0
3 years ago
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