Determine the outcome of the hedge

Assignment Help Financial Management
Reference no: EM132055952

On July 1, a portfolio manager holds $1 million face value of Treasury bonds, the 11 1/4s maturing in about 29 years. The price is 107 14/32. The bond will need to be sold on August 30. The manager is concerned about rising interest rates and believes that a hedge would be appropriate. The September T-bond futures price is 77 15/32. The price sensitivity hedge ratio suggests that the firm should use 13 contracts.

a. What transaction should the firm make on July 1?

b. On August 30, the bond was selling for 101 12/32 and the futures price was 77 5/32. Determine the outcome of the hedge.

Reference no: EM132055952

Questions Cloud

Delivery company has purchased delivery truck : A local delivery company has purchased a delivery truck for $12,000. If the company plans to keep the truck only two years, what is the net present worth?"
New process machine for the firm manufacturing facility : The A.M.I. Company is considering installing a new process machine for the firm's manufacturing facility. Compute the IRR of the investment.
Intellectual capital information : Critically discuss the role of non-financial information – e.g., intellectual capital information
Notion of earnings quality within the context of equity : Explain the notion of earnings quality within the context of equity research.
Determine the outcome of the hedge : What transaction should the firm make on July 1? Determine the outcome of the hedge.
Asset systematic risk firm-specific risk : Asset Systematic Risk Firm-specific risk
Valuations and investment recommendations : The existing literature on sell-side analysts demonstrates that not only analysts err in their forecasts, valuations and investment recommendations,
Evaluating two competing investment projects : Steers is evaluating two competing investment projects. Both projects require an invest of R30 million.
Compute the fundamental value of ecoshop stock : Compute the fundamental value of EcoShop’s stock using the FCFF valuation model.

Reviews

Write a Review

Financial Management Questions & Answers

  Foreign company acquisition

Acquisition by a foreign company and the effects of that decision and the results of foreign exchange in Euro and the exchange rate differences.

  Financial management for profit and non profit organizations

In this essay, we are going to discuss the issues of financial management in a non-profit organisation.

  Method for estimating a venture''s value

Evaluate venture's present value, cash and surplus cash and basic venture capital.

  Replacement analysis

This document show the Replacement Analysis of modling machine. Is replacement give profit to company or not?

  Business finance task - capital budgeting

Your company is considering using the payback period for capital-budgeting. Discuss the advantages and disadvantages of this technique.

  Analysis of the investment

In this project, you will focus on one of these: the additional cost resulting from the purchase of an apple press (a piece of equipment required to manufacture apple juice).

  Conduct a what-if analysis

Review the readings and media for this unit, including the Anthony's Orchard case study media. Familiarise yourself with the Anthony's Orchard company and its current situation.

  Determine operational expenditures

Organisations' behaviour is guided by financial data. In the short term, such data will help determine operational expenditures; in the long term, historical data may help generate forecasts aimed at determining strategic plans. In both instances.

  Personal financial management

How much will you have left over each half year if you adopt the latter course of action?

  Sources of finance for expansion into new foreign markets

A quoted company is considering several long-term sources of finance for expansion into new foreign markets.

  Long term financial planning

This assignment is designed for analyze Long term financial planning begins with the sales forecast and the key input in the long term fincial planning.

  Explain the role of fincial manager

This assignment explain the role of fincial manager, function of manger. And what are the motives of financial manager.

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd