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Financial Derivatives and Risk Management Assignment - Document preview page 1

Financial Derivatives and Risk Management Assignment - Page 1

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Financial Derivatives and Risk Management Assignment

Description: This assignment explores financial derivatives and strategies for managing risk in investment portfolios.

Hunter Harris
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12 months ago
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Financial Derivatives and Risk Management Assignment - Page 1 preview imageFinancial Derivatives and Risk Management Assignment4.Black-Scholes modelAssume you have been given the following information on Purcell Industries:Current stock price = $16Exercise price of option = $10Time to maturity of option = 6 monthsRisk-free rate = 8%Variance of stock price = 0.14d1= 2.05992d2= 1.79534N(d1) = 0.98N(d2) = 0.96Using the Black-Scholes Option Pricing Model, what would be the value of the option? Round youranswer to two decimal places.$________Answer:
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Financial Derivatives and Risk Management Assignment - Page 2 preview image
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Financial Derivatives and Risk Management Assignment - Page 3 preview image5.Futuresa. What is the implied nominal interest rate on a 10-year U.S. T-notes ($100,000) futures contract thatsettled at 100'20 (or 100-200)? Assume a 6% semiannual coupon.Round your answer to two decimal places.________%b. If interest rates increased by 3%, what would be the contract's new value? Use rounded rates fromthe previous question in your calculations.Round your answer to two decimal places.
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Financial Derivatives and Risk Management Assignment - Page 4 preview image$________Answer:
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Financial Derivatives and Risk Management Assignment - Page 5 preview image6.HedgingThe Zinn Company plans to issue $20,000,000 of 10-year semiannual bonds in June 2012 tohelp finance a new research and development laboratory. It is now early September, and the current costof debt to the high-risk biotech company is 10%. The coupon rate equals 10%. However, the firm'sfinancial manager is concerned that interest rates will climb even higher in coming months.US 10 Yr T-Notes Comp.-cbotContractMonthLastChgOpenHighLowVolumeOpenIntExchangeDateTime10 YrNoteSep'11131'04.5-0'05.0131'08.5131'27.5131'03.55214274026CBT09/06/1116:22:2110 YrNoteDec'11130'06.5-0'05.0130'11.5130'31.0130'06.010067221725046CBT09/06/1116:22:2910 YrNoteMar'12129'11.5y01CBT09/02/1119:02:3710 YrNoteJun'12128'11.5y00CBT09/02/1119:02:37
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Financial Derivatives and Risk Management Assignment - Page 6 preview image10 YrNoteSep'12127'11.5y00CBT09/02/1119:02:37a.Use data in the table to create a hedge against rising interest rates.Value of each T-bond futures contract= $95,531.25b.Assume that interest rates in generalincrease by 200 basis points. How much did the firm gain orlose? (Hint:The future contracts are on hypothetical 10-year, 6% semiannual coupon bonds.)Round your answer to two decimal places.$Answer:
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