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Assume the current spot price for crude oil is $66.65 per barrel and the futures price for crude oil is $66.70 per barrel. A futures contract is for 1000 barrels.
On Monday, Stacey buys one futures contract from Ben. Both Stacey and Ben are speculators in this futures market, whose initial margin requirement is $7,500 and whose margin maintenance requirement is $5,500. For hedgers the initial margin requirement is the same as the margin maintenance requirement. Assume that Stacey and Ben will always keep the minimum required amount in their margin accounts. Also, assume (artificially) that no marking to market is done on the expiration date of the contract.
1. How much must Stacey deposit in her margin account in order to buy this futures contract?
2. How much must Ben deposit in his margin account in order to sell this futures contract?
What is the value today of a 15-year annuity that pays $690 a year? The annuity's first payment occurs six years from today. The annual interest rate is 12 percent for Years 1 through 5, and 14 percent thereafter.(Do not round intermediate calcula..
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Suppose you just won the state lottery, and you have a choice between receiving $2,075,000 today or a 15-year annuity of $300,000, with the first payment coming one year from today. What rate of return is built into the annuity? Disregard taxes.
An analyst has modeled the stock of a company using a Fama-French three-factor model. The risk-free rate is 4%, the market return is 10%, the return on the SMB portfolio (rSMB) is 3.6%, and the return on the HML portfolio (rHML) is 5.4%. If ai = 0, b..
Use simple decision trees and a 10% per year discount rate to evaluate Project Sable, which has two phases. You may invest in the first, in both or in neither. You may not invest in the second phase without investing in the first. Phase 1 requires an..
The market portfolio has an expected return of 9 percent with a 10 percent volatility. The risk-free rate is 4 percent. A stock has a 20 percent volatility and a correlation coefficient of minus 0.10 with the market. a. What is the stock’s beta? What..
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