Chapter 5

Beatriz Peregrina Viñolo
Quiz by Beatriz Peregrina Viñolo, updated more than 1 year ago
Beatriz Peregrina Viñolo
Created by Beatriz Peregrina Viñolo about 7 years ago
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Description

Quiz on Chapter 5, created by Beatriz Peregrina Viñolo on 11/29/2014.

Resource summary

Question 1

Question
KMW, Inc. plans to pay a dividend of $0.50 per share both 3 and 6 months from today. KMW's share price today is $36.00 and the continuously compounded quarterly interest rate is 1.5%. What is the price of a 6-month prepaid forward contract, which expires immediately after the second dividend?
Answer
  • $35.00
  • $35.02
  • $36.98
  • $37.00

Question 2

Question
The S&P 500 Index is priced at $950.46. The annualized dividend yield on the index is 1.40%. What is the price of a 6-month prepaid forward contract on the S&P 500 Index?
Answer
  • $943.83
  • $950.00
  • $964.26
  • $984.21

Question 3

Question
HAW, Inc. plans to pay a $1.10 dividend per share in 3 months and a $1.15 dividend in 6 months. HAW's share price today is $45.60 and the continuously compounded quarterly interest rate is 2.1%. What is the price of a forward contract, which expires immediately after the second dividend?
Answer
  • $45.28
  • $45.96
  • $45.60
  • $46.24

Question 4

Question
The S&P 500 Index is priced at $950.46. The annualized dividend yield on the index is 1.40%. The continuously compounded annual interest rate is 8.40%. What is the price of a forward contract that expires 9 months from today?
Answer
  • $937.48
  • $942.66
  • $984.36
  • $1001.69

Question 5

Question
Which of the following statements does NOT accurately reflect the relationship between securities and synthetic forward contracts?
Answer
  • Forward = stock - zero coupon bond
  • Zero coupon bond = stock - forward
  • Prepaid forward = forward - zero coupon bond
  • Stock = forward + zero coupon bond

Question 6

Question
The annualized dividend yield on the S&P 500 Index is 1.40%. The continuously compounded interest rate is 6.4%. If the 9-month forward price is $925.28 and the index is priced at $950.46, what is the profit/loss from a cash-and-carry strategy?
Answer
  • $25.18 loss
  • $25.18 gain
  • $61.50 loss
  • $61.50 gain

Question 7

Question
The price of an S&P 500 Index futures contract is $988.26 when you decide to enter a long position. When the position is closed the futures price is $930.32. If there are no settlement requirements, what is your dollar gain or loss? (Ignore opportunity costs.)
Answer
  • $14,485 loss
  • $14,485 gain
  • $57.94 loss
  • $57.94 gain

Question 8

Question
The price of an S&P 500 Index futures contract is $988.26 when you decide to enter a long position. When the position is closed the futures price is $930.32. If there are no settlement requirements, what is your percentage gain or loss under a 15.0% margin requirement? (Ignore opportunity costs.)
Answer
  • 39% gain
  • 39% loss
  • 43% gain
  • 43% loss

Question 9

Question
Consider an investment in five S&P 500 Index futures contracts at a price of $924.80. The initial margin requirement is 15.0% and the maintenance margin is 10.0%. If the continuously compounded interest rate is 5.0% what will the futures price need to be for a margin call to occur 10 days from now? Assume no settlement within the 10 days.
Answer
  • $852.64
  • $872.79
  • $898.63
  • $905.25

Question 10

Question
The S&P 500 Index price is $925.28 and its annualized dividend yield is 1.40%. LIBOR is 4.2%. How many futures contracts will you need to hedge a $25 million portfolio with a beta of 0.9 for one year?
Answer
  • 105
  • 120
  • 80
  • 95

Question 11

Question
Interest rates on the U.S. dollar are 5.4% and euro rates are 4.6%. Given a dollar per euro spot rate of 0.918, what is the 6-month forward rate ($/E)?
Answer
  • 0.912
  • 0.917
  • 0.922
  • 0.934

Question 12

Question
Interest rates on the U.S. dollar are 6.5% and euro rates are 5.5%. The dollar per euro spot rate is 0.950. What is the arbitrage profit on a required 1 million euro payment if the forward rate is 0.980 dollars per euro and the exchange occurs in one year?
Answer
  • $10,000
  • $21,000
  • $28,000
  • $34,000

Question 13

Question
An investor wants to hold 200 euro two years from today. The spot exchange rate is $1.31 per euro. If the euro denominated annual interest rate is 3.0% what is the price of a currency prepaid forward?
Answer
  • $200
  • $206
  • $231
  • $247

Question 14

Question
The manager of a blue chip growth stock mutual fund is trying to fully hedge the $650 million portfolio position during the last two months of the calendar year. The current price of the S&P 500 Index futures contract is 1200. If the mutual fund has a beta of 1.24, how many contracts will be needed to hedge the fund?
Answer
  • 1,083
  • 3,033
  • 242,963
  • 541,666

Question 15

Question
The current currency spot rate is $1.31 per euro. If dollar denominated interest rates are 3.0% and euro denominated interest rates are 4.0%, what is the likely dollar per euro exchange rate for a 2-year forward contract?
Answer
  • $1.28
  • $1.30
  • $1.31
  • $1.33
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