Economics

Quiz 1
Problem 1
Mr. X shorts 10 futures contacts of silver (contract size – 5000 oz). The current futures price is $15.758 per ounce. The initial margin is $ 4,599 per contract, the maintenance margin is $ 3, 750 per lot.
a) At what price level would Mr. X receive a margin call

b) At what level would Mr. X be allowed to withdraw $ 5,555 from his margin account?

Problem 2
Carefully explain the difference between the credit risk and the market risk in a financial contract such as a Swap. Describe certain scenarios when credit risk is most prevalent and when it is effectively zero.

Problem 3
Suppose that zero interest rate with continuous compounding are as follows:
Maturity (Years) 1 2 3 4 5
Rate (% per annum) 3.30% 3.66% 3.93% 4.27% 4.63%

Calculate the forward interest rates for the second, third, fourth and fifth years

Year Forward rate
2
3
4
5

Problem 4
Companies X and Y have been offered the following rates per annum on a $ 10 million 5- year investment
Fixed Rate Floating Rate
Company X 4.0% LIBOR
Company Y 4.6% LIBOR

Company X requires a fixed-rate investment; company Y required a floating-rate investment. Design a Swap that will net a bank acting as intermediary, 0.20% per annum and will be equally attractive to X and Y. Draw a graph for your answers.
Problem 5
Give a detailed explanation of how a portfolio manager could use “duration” to hedge the risk in a bond portfolio. What are some of the caveats in hedging a bond portfolio? What metrics should he use to make the hedge most effective?
Problem 6
A portfolio manager has a bond portfolio of $ 10 million. The duration of the portfolio is 7.2 years. The front month T-bond futures are currently at 95-15. The cheapest-to-deliver bind has duration of 8.5 years. How should the portfolio manager immunize the portfolio against changes in interest rates in the near term?

Problem 7
Mr. X currently holds 33,000 shares of a certain stock. The stock is currently trading at: $59.33 per share. He is interested in hedging against short-term movements in the market and decides to use eMini S&P futures to hedge his exposure. The index is currently at; 2065, contract size= $50 times index. Beta of the stock = 0.78. Calculate how many eMini S&P futures contracts are needed to hedge the portfolio against downside price risk.
Problem 8
Carefully explain why the expected loss from a default on a swap is less than the expected loss from the default on a loan with the same principal?

Order a unique copy of this paper
(550 words)

Approximate price: $22

Basic features
  • Free title page and bibliography
  • Unlimited revisions
  • Plagiarism-free guarantee
  • Money-back guarantee
  • 24/7 support
On-demand options
  • Writer’s samples
  • Part-by-part delivery
  • Overnight delivery
  • Copies of used sources
  • Expert Proofreading
Paper format
  • 275 words per page
  • 12 pt Arial/Times New Roman
  • Double line spacing
  • Any citation style (APA, MLA, Chicago/Turabian, Harvard)

Our guarantees

Delivering a high-quality product at a reasonable price is not enough anymore.
That’s why we have developed 5 beneficial guarantees that will make your experience with our service enjoyable, easy, and safe.

Money-back guarantee

You have to be 100% sure of the quality of your product to give a money-back guarantee. This describes us perfectly. Make sure that this guarantee is totally transparent.

Read more

Zero-plagiarism guarantee

Each paper is composed from scratch, according to your instructions. It is then checked by our plagiarism-detection software. There is no gap where plagiarism could squeeze in.

Read more

Free-revision policy

Thanks to our free revisions, there is no way for you to be unsatisfied. We will work on your paper until you are completely happy with the result.

Read more

Privacy policy

Your email is safe, as we store it according to international data protection rules. Your bank details are secure, as we use only reliable payment systems.

Read more

Fair-cooperation guarantee

By sending us your money, you buy the service we provide. Check out our terms and conditions if you prefer business talks to be laid out in official language.

Read more

Calculate the price of your order

550 words
We'll send you the first draft for approval by September 11, 2018 at 10:52 AM
Total price:
$26
The price is based on these factors:
Academic level
Number of pages
Urgency

Order your paper today and save 10% with the discount code HDCOVID10