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2013

The document appears to be an exam for a business school course on derivative securities. It contains two parts: Part A with 20 multiple choice questions worth 50 marks total, and Part B with 4 longer answer questions worth 12.5 marks each. Part B requires students to show all calculations. Question 21 asks the student to complete a table of zero rates based on bond pricing information. Question 22 describes a hedging scenario involving commercial paper and futures contracts. Question 23 values a gold forward position based on changes in the spot price. Question 24 calculates an arbitrage-free futures price given information about the index level, risk-free rate, and dividend yield.

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88 views6 pages

2013

The document appears to be an exam for a business school course on derivative securities. It contains two parts: Part A with 20 multiple choice questions worth 50 marks total, and Part B with 4 longer answer questions worth 12.5 marks each. Part B requires students to show all calculations. Question 21 asks the student to complete a table of zero rates based on bond pricing information. Question 22 describes a hedging scenario involving commercial paper and futures contracts. Question 23 values a gold forward position based on changes in the spot price. Question 24 calculates an arbitrage-free futures price given information about the index level, risk-free rate, and dividend yield.

Uploaded by

jacklee1918
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
You are on page 1/ 6

Part B

SOLUTIONS..........

Family Name:.......

Other Names:........................................................................
Student Number:..................................................................

Part 1
21
22
23
24

/50
/12.5
/12.5
/12.5
/12.5

Total

MURDOCH BUSINESS SCHOOL


BUS325 DERIVATIVE SECURITIES
IN-TERM TEST
FEBRUARY 2013

Time Allowed:

One and one half hours.

Aids Allowed:

To be supplied by Candidate:
Attached to this paper:

Format:

This paper has two parts. Part A contains 20 multiple choice


questions worth a total of 50 marks, and Part B contains 4
questions worth 12.5 marks each. Answer Part A on the
answer sheet, and Part B on the question paper in the space
provided. Show all calculations for Part B.

Calculator
Formula Sheet

Part B Answer these questions on the question paper in the space provided.
21.

Complete the table (below) of continuously compounded zero (spot) rates if the cash price of
a bond that matures in exactly 18 months is $1,033.02. The bond has a face value of $1,000
and pays coupons semi-annually with a coupon rate of 8% p.a..
Maturity (months)
6
12
18
24

Rate (% p.a.)
5.30
5.50
?
5.65
[12.5 marks]

P = C1 .e r1 .t1 + C 2 .e r2 .t 2 + (C 3 + FV ).e r3 .t3


1,033.02 = 40.e 0.0530.5 + 40.e 0.0551 + (1,000 + 40).e r3 1.5
1,033.02 = 40 (0.9738 + 0.9465) + 1040 e r3 1.5
e r3 1.5 = (1,033.03 76.81.21) / 1040
r3 1.5 = ln(0.91943)
r3 = 0.0560

=> the eighteen-month spot rate is 5.60% p.a.

22.

Suppose that it is February 23rd and the treasurer of an US firm realises that on August 23rd
the firm will have to issue $3 million of commercial paper with a maturity of 180 days. If
the paper were issued today, the firm would realise $2,892,000. September 91-day T-bill
futures ($1million) are quoted at 92.00 on the CME. Describe the steps the treasurer should
take to hedge the firms exposure?
[12.5 marks]

F = 10,000(100 0.25 8) = 980,000

N=

S DS
F DF

2892000 0.5
980000 0.25
= 5.902

February:
Sell 6 September 90-day bank bill futures contracts
August:
Buy 6 September 90-day bank bill futures contracts to close futures position, and issue (sell)
commercial paper with $3 million face value.

23.

On December 21st 2012, Eve entered into a one-year long forward contract to buy 100
ounces of gold for USD1,700.00/oz. Three months later (March 21st, 2013), she observes
that the spot price of gold was USD1,620.00/oz, what is the value of her position on this
date? Assume the only carrying cost associated with gold is the interest rate, which remains
unchanged at 10% p.a. (continuous compounded) for all maturities.
[12.5 marks]

f = ( F0 K )e rT

F0 = S 0 e rT

and

hence
f = S 0 K .e rT
= 1620 1700.e 0.10.75
= +$42.84
Since Eve had a long position, she has made a gain (agreed to buy at a price below the new
equilibrium futures price).
(Loss)

24.

The continuously compounded dividend yield on the SPI is 3.0% p.a. and the risk-free rate
of interest is 1.3% p.a. with continuous compounding for all maturities. If the five-month
S&P500 share price index (SPI) futures price is 1,600 points, what will be the noarbitrage value of the two-month index futures contract?
[12.5 marks]

F =Fe
2 1

(r q)(T2 T1 )
( 0.013 0.030)).( 5 2 )
12 12

1600 = F .e
1
1600 = F .e 0.0170.25
1
F = 1607
1

______________________________________________
END OF PAPER

10

Formulae you may require:

F0 = S 0 e ( r q )T

F0 = S 0 e ( c y )T

F2 = F1e

( r q )(T2 T1 )

f = ( K F0 )e rT

F0 = S 0 e ( rh rf ) T
RC = m ln(1 +

Rm
)
m

P = C1 .e r1 .t1 + C 2 .e r2 .t2 + C3 .e r3 .t3 + ... + (C n + FV ).e rn .tn

Rt ,t + n =

Rt + n .Tt + n Rt .Tt
Tt + n Tt

Cash Price = 100

h=

N=

n
Discount Rate
360

S
=
F

VS DS
V F DF

N =

VS
VF

ci e yti
D = ti

B
i =1
n

B
= Dy
B
________________________________

11

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