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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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A firm in a perfectly competitive market has a fixed cost of $1,000 and a variable cost of $500 while it is earning the revenue
grin007 [14]

Answer:

Firm should not shut down, as it is able to cover its Average Variable Cost

Explanation:

Perfect Competition firms in Short Run : The firms produce even if their average revenue (price) < their average total costs (AC). They continue production until Average variable cost (AVC) ≥ per unit price (P) i.e average revenue (AR). This is called Shut Down Point. P lower beyond AVC implies that firm won't continue even in short run.

Given : Variable Cost (VC) = 500 ; Revenue (R) = 510

Average Variable Costs & Average Revenue are variable costs & revenue, per unit quantity. AVC = VC / Q ; AR (P) = R / Q

R i.e 510 > VC i.e 500

So, R/ Q i.e AR is also > VC / Q i.e AVC

Since AVC > AR (P), firm should not shut down

8 0
3 years ago
Samuel owns a bond with a par value of $5,000 and a coupon rate of 5 percent. he will receive _____ in annual interest until the
tester [92]
Given:
Par value of the bond : 5,000
coupon rate of the bond: 5%

par value x coupon rate = annual interest

5,000 x 5% = 250 annual interest

Samuel will receive an annual interest of $250 until the bond reaches maturity, or he sells the bond to someone else.

Regardless of the changes in bond prices in the market, Samuel will always receive a fixed annual interest of 250 from his bond.


4 0
3 years ago
What advice does Jessica Cervantes give to teen entrepreneurs who are just starting out? (Site 1).
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Jessica Cervantes is a renowned entrepreneur and business women who advises the new entrepreneurs who are just starting to enter this zone.

<h3>Advice of Jessica Cervantes</h3>

Jessica Cervantes says that new entrepreneurs should have faith in themselves , and this faith and believe must reflect in their products.

She also advised to use all the resources and to reach out to the other entrepreneurs seeking help and advice.

Therefore, Jessica Cervantes motivated and advised the new entrepreneurs who just entered in the field of entrepreneurship.

Learn more about Jessica Cervantes here:

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7 0
2 years ago
The nature of intellectual property laws and how they are enforced is one aspect of a country's _____.
kykrilka [37]

The aspect of a country making some changes to its intellectual property laws and <em>how they are enforced</em> is based on the:

  • <u>B. Regulatory practices</u>  

According to the given question, we are asked to state the aspect of a country making some changes to its intellectual property laws and <em>how they are enforced,</em>

As a result of this, we can see that regulatory practices are those things which a country or an organisation does so that some aspects of its functioning system is controlled. With this in mind, we can see that adjusting property laws is an example of a regulatory practise.

Therefore, the correct answer is option C

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5 0
2 years ago
Gardner Machine Shop estimates manufacturing overhead costs for the coming year at $ 302 comma 000$302,000. The manufacturing ov
Ainat [17]

Answer:

$140,309.20

Explanation:

The computation of the manufacturing overhead is shown below:

Predetermined overhead rate = (Total estimated manufacturing overhead) ÷ (estimated direct labor-hours)

= $302,000 ÷ 5,000 hours

= $60.4

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= $140,309.20

This is the answer but the same is not provided in the given options

8 0
3 years ago
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