1.The three year zero rate is 7% per annum and the four year zero rate is 7.5% pa (both continuously compounded). What is the one year (continuously compounded) forward rate starting in three years time?(2 marks)2.The zero rate curve is flat at 6% pa with semi-annual compounding. What is the value of a FRA where the holder receives interest at the rate of 8% per annum with semi-annual compounding for a six month period on a principle of $1000 starting in 2 years?(2 marks)3.The margin requirement on the S&P/ASX 200 futures contract is 10% and the stock index is currently 4400. Each contract has a multiplier of $25. How much margin must be put up for each contract sold? If the futures price falls by 1% to 4356, what will happen to the margin account of an investor who holds one contract? What will the investor’s percentage return based on the amount put up as margin be?4.The S&P/ASX 200 index is currently at 4000. You manage a $4 million indexed equity portfolio. The S&P/ASX 200 futures contract has a multiplier of $25.a)If you are temporarily bearish on the stock market, how many contracts should you sell to fully eliminate your exposure over the next six months?(1 mark)b)If government pay 2% per six months and the semi-annual dividend yield is 1%, what is the parity value of the futures price? Show that if the contract is fairly priced, the total risk-free proceeds on the hedged strategy in part (a) provide a return equal to the government bond rate.(1 mark)5.In early 2012, the spot exchange rate between the Swiss Franc and the U.S dollar was 1.0404($ per franc). Interest rates in the U.S. and Switzerland were 0.25% and the 0% per annum, respectably, with continuous compounding. The three-month forward exchange rate was 1.0300($ per franc). What arbitrage strategy was possible? How does your answer change if the exchange rate is 1.0500($ per franc).(2 marks)
Hi there! Click one of our representatives below and we will get back to you as soon as possible.