Reference no: EM132837003
Describe the exchange-traded market and the over-the-counter market (or OTC market). Provide two examples of ways that exchange-traded market and the over-the-counter market (or OTC market). may be used to manage risks.
A company enters into a short futures contract to sell 5,000 bushels of wheat for 250 cents per bushel. The initial margin is $3,000 and the maintenance margin is $2,000.What price change would lead to a margin call? Under what circumstances could $1,500 be withdrawn from the margin account?
A trader buys 200 shares of a stock on margin. The price of the stock is $20 per share. The initial margin is 60% and the maintenance margin is 30%. How much money does the trader have to provide initially? For what share price is there a margin call?
Estimate the interest rate paid by P&G on the 5/30 swap in Business Snapshot 5.4 if (a) the CP rate is 6.5% and the Treasury yield curve is flat at 6% and (b) the CP rate is 7.5% and the Treasury yield curve is flat at 7% with semiannual compounding.
Portfolio A consists of a one-year zero-coupon bond with a face value of $2,000 and a 10-year zero-coupon bond with a face value of $6,000. Portfolio B consists of a 5.95-year zero-coupon bond with a face value of $5,000. The current yield on all bonds is 10% per annum (continuously compounded). (a) Show that both portfolios have the same duration. (b) Show that the percentage changes in the values of the two portfolios for a 0.1% per annum increase in yields are the same. (c) What are the percentage changes in the values of the two portfolios for a 5% per annum increase in yields?
What are the convexities of the portfolios in Problem 9.17? To what extent do (a)duration and (b) convexity explain the difference between the percentage changes calculated in part (c) of Problem 9.17?
When the partial durations are as in Table 9.5, estimate the effect of a shift in the yield curve where the ten-year rate stays the same, the one-year rate moves up by 9e, Interest Rate Risk 211 and the movements in intermediate rates are calculated by interpolation between 9e and 0. How could your answer be calculated from the results for the rotation calculated in Section 9.6?
Suppose that the change in a portfolio value for a one-basis-point shift in the 1-, 2-, 3-, 4-, 5-, 7-, 10-, and 30-year rates are (in $ millions) +5, -3, -1, +2, +5, +7, +8, and +1, respectively. Estimate the delta of the portfolio with respect to the first three factors in Table 9.6. Quantify the relative importance of the three factors for this portfolio.