Skip to content
Solved Assignments

Financial Derivatives and Risk Management Assignment

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

Preview · 6 of 19 pages

100%

  1. Page 1

    Financial Derivatives and Risk Management Assignment, page 1Financial 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:

  2. Page 2

    Financial Derivatives and Risk Management Assignment, page 2

  3. Page 3

    Financial Derivatives and Risk Management Assignment, page 35.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.

  4. Page 4

    Financial Derivatives and Risk Management Assignment, page 4$________Answer:

  5. Page 5

    Financial Derivatives and Risk Management Assignment, page 56.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

  6. Page 6

    Financial Derivatives and Risk Management Assignment, page 610 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:

13 more pages in the full document

Unlock it once and it stays in your library, ready to chat with or turn into flashcards.

Unlock the full document

More Finance study materials

See all

Study this document with CramX

Once it is in your library, every tool can work from it.