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Introduction To Derivative Securities Essay

256 words - 2 pages

Assignment 1 [Due 11 September 2015, 4pm]
Assignment should be submitted in the box 402-512 by the due date.
Penalty will apply for late submission

Question-1
The six month and one-year rates are 3% and 4% per annum with semi-annual compounding. Is 3.90% or 3.95% or 3.99% closest to the one-year par yield expressed with semi-annual compounding? (3 ...view middle of the document...

The initial margin is $4,000 and the maintenance margin is $3,000. Explain what is the futures price per unit above which there will be a margin call? (3 marks)

Question-3
The spot price of an investment asset is $30 and the risk-free rate for all maturities is 10% with continuous compounding. The asset provides an income of $2 at the end of the first year and at the end of the second year. What is the three-year forward price? (2 mark)

Question-4
On March 1 a commodity’s spot price is $60 and its August futures price is $59. On July 1 the spot price is $64 and the August futures price is $63.50. A company entered into futures contracts on March 1 to hedge its purchase of the commodity on July 1. It closed out its position on July 1. What is the effective price (after taking account of hedging) paid by the company? (2 marks)

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