Autor:   •  November 16, 2018  •  641 Words (3 Pages)  •  128 Views

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- Assume that the continuously-compounded annual interest rate is 6% for all maturities. Calculate the price of a bond with principal value of €100, an annual coupon of 5%, and two years until maturity.

interest rate

0.06

c1

5

1

c2

105

2

price

97.83547

- A bank offers a savings account with a stated annual rate of 3% with interest compounded quarterly. Suppose that the bank wants to switch to monthly compounding, but use an annual stated rate that leaves savers no worse off or better off at the end of the year compared to their current situation. What stated annual interest rate should it use with monthly compounding?

m

4

rate

0.03

FV

1.0303392

r

0.0298881

new m

12

new rate

0.0299253

- Jane Smith deposits €100 in a savings account at the beginning of the year and does not deposit or withdraw any money during the year. The account has a stated annual rate of 2.5% with monthly compounding. What will be the balance of her account at the end of the year?

initial amount

100

stated rate

0.025

m

12

FV

102.52885

- A manufacturing firm uses a 12 month rolling hedge to guard against its price risk from oil price increases. On January 1st it goes long 50 six-month oil futures contracts at a futures price of \$55 per barrel. Each contract is for delivery of 1000 barrels of oil. On June 30th it closes its position in the contract at a futures price of \$58 per barrel, and opens a new position in a December 31st contract at a futures price of \$59 per barrel. On December 30th the company closes its futures position at a futures price of \$57.50 per barrel, and purchases 60,000 barrels of heating oil at a spot market price of \$57.75 per barrel. What is the manufacturer’s effective purchase price for heating oil, taking into account its hedging strategy?

units per contract

1000

contracts

50

jan 1 fut price

55

june 30th expiring fut price

58

june 30th new fut price

59

dec 31 fut price

57.5

hedging profit

75000

units purchased

60000

spot price

57.75

effective purchase price

56.5

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