Already have an account? Get multiple benefits of using own account!
Login in your account..!
Remember me
Don't have an account? Create your account in less than a minutes,
Forgot password? how can I recover my password now!
Enter right registered email to receive password!
Question: An FI has a $200 million asset portfolio that has an average duration of 6.5 years. The average duration of its $160 million in liabilities is 4.5 years. Assets and liabilities are yielding 10 percent. The FI uses put options on T-bonds to hedge against unexpected interest rate increases. The average delta () of the put options has been estimated at -0.3 and the average duration of the T-bonds is seven years. The current market value of the T-bonds is $96,000. Put options on T-bonds are selling at a premium of $1.25 per face value of $100.
a. What is the modified duration of the T-bonds if the current level of interest rates is 10 percent?
b. How many put option contracts should the FI purchase to hedge its exposure against rising interest rates? The face value of the T-bonds is $100,000.
c. If interest rates increase 50 basis points, what will be the change in value of the equity of the FI?
d. If interest rates increase 50 basis point, what will be the change in value of the T-bond option hedge position?
e. What must be the change in interest rates before the change in value of the balance sheet (equity) will offset the cost of placing the hedge?
f. How much must interest rates change before the payoff of the hedge will exactly cover the cost of placing the hedge?
Finance is about Gunns Ltd, a company in dealing with forestry products in Australia. The company has also been listed in Australian Stock Exchange. As many companies producing forestry products, even Gunns Ltd is facing various problems. Due to the ..
This report is specific for a core understanding for Financial Accounting and its relevant factors.
Describe the types of financial ratios and other financial performance measures that are used during venture's successful life cycle.
Briefly describe the major differences between a sole proprietorship and a corporation
Calculate the expected value of the apartment in 20 years' time. What is the mortgage loan repayment at the beginning of each month
What are the implied interest rates in Europe and the U.S.?
State pricing theory and no-arbitrage pricing theory
Identify the likely stage for each venture and describe the type of financing each venture is likely to be seeking and identify potential sources for that financing.
The Effect of Financial Leverage and working capital management
Evaluate the basis for the payment to the lender and basis for the payment to the company-counterparty.
Research and discuss the differences and importance of : OPPS, IPPS, MPFS and DMEPOS.
Time Value of Money project
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!
whatsapp: +1-415-670-9521
Phone: +1-415-670-9521
Email: [email protected]
All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd