What is the value of the forward contract

Assignment Help Business Management
Reference no: EM133183702

Your bank has entered into a forward to buy one million ounces of gold from a mining company in two years for $1,500/oz. The current forward price is $1,600; the risk-free rate is 5% per year, the recovery rate is 30%, the volatility of the forward price of gold with two-year expiry is 20%. Defaults can happen in the middle of each month. The default probability during the first year is 0.001667 per month and the default probability during the second year is 0.0025 per month. What is the value of the forward contract after the possibility of defaults has been taken into account?

Reference no: EM133183702

Questions Cloud

Calculate the sales variance and sales volume for the period : W Ltd has budgeted sales of 650 units but actually sold only 600 units. Calculate the sales variance and sales volume for the period
What is the appropriate premium rate paid : Assume defaults happen exactly halfway through a year. What is the appropriate premium rate paid by the protection buyer?
Essential purpose for financial markets : What is the essential purpose for financial markets? How does a Ponzi scheme work? Discuss some of the forces that help make markets efficient?
Financial results for different segments of your company : Financial results for the different segments of your company. How much of their revenue is being generated outside the US?
What is the value of the forward contract : What is the value of the forward contract after the possibility of defaults has been taken into account?
How can consumers become more involved in own health care : What products and resources are available for people who wish to take control of their health and monitor chronic disease states from home?
Summarise the measures required to turn the company : A. Summarise the measures required to turn the company around
External financing requirements and agency conflicts : We examined two important topics in finance during this unit: external financing requirements and agency conflicts.
Why do we need to study ethics in a business course : Why do we need to study "ethics" in a business course? Why is it important to understand and differentiate between "morals" and the "institutionalization" of bu

Reviews

Write a Review

Business Management Questions & Answers

  Internal and external stakeholders

In Healthcare, What involvement does management need to have to achieve buy-in from internal and external stakeholders?

  What is the portfolios duration

What are the limitations of using duration as a measure of a bond's price sensitivity to interest-rate changes?- What is the portfolio's duration?

  130 sporting goods and outdoor recreation stores in 34

REI operates more than 130 sporting goods and outdoor recreation stores in 34 states. How many of the four tests of the competitive power of a resource

  Marketing philosophy of commercial bank of ethiopia

1. Assess the marketing philosophy of Commercial Bank of Ethiopia. Which of the philosophies discussed, do you think, is adopted by the bank.

  Discuss a prominent environmental

Discuss a prominent environmental or sustainability practice employed by Krogers. If your company does not have them, provide information on a company that you

  Called upon to be change agent for your organization

Discuss what would be your strategy if you were called upon to be a change agent (leader) for your organization.

  What type of advertising methods do they use

1) What type of advertising methods do they use? 2) Why did they choose to use these methods?

  Credible source to retrieve most recent income statement

Search Yahoo Finance or any other credible source to retrieve the most recent income statement and balance sheet for a major leveraged corporation.

  Monopolist profit-maximizing price

It is very expensive to do the research to invent a new drug, but the cost of producing the drug once it has been invented is only $1 per dose. Assume the inventor has a patent, which creates a monopoly. a) Draw a diagram showing the monopolist's ..

  What makes ceo compensation unique and problematic

Explain why there might be other alternatives that work better for long-term company growth and profitability. Provide an example of such an alternative pay

  Difference between operational effectiveness and strategy

According to Porter, what is the difference between operational effectiveness and strategy? Please provide specific examples of both

  What is the target fee for an overnight stay

What fee should they charge to obtain a contribution margin of 32%? [Hint: if the contribution margin is 32%, then the $450 cost is 68% of Operating Revenues.] What is the target fee for an overnight stay?

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