chapter 6

Beatriz Peregrina Viñolo
Quiz by Beatriz Peregrina Viñolo, updated more than 1 year ago
Beatriz Peregrina Viñolo
Created by Beatriz Peregrina Viñolo over 6 years ago
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Description

Quiz on chapter 6, created by Beatriz Peregrina Viñolo on 11/30/2014.

Resource summary

Question 1

Question
Refer to the table 6.1. What is the approximate annualized lease rate on the 12-month corn forward contract?
Answer
  • 0.00%
  • 2.25%
  • 3.92%
  • 7.84%

Question 2

Question
Refer to the table 6.1. What is the approximate annualized lease rate on the 18-month soybean forward contract?
Answer
  • 0.69%
  • 1.52%
  • 2.69%
  • 3.31%

Question 3

Question
Refer to the table 6.1. If wheat farmers expect a return of 8.0% on their investment in wheat, what is the approximate implied increase in wheat commodity prices over the next 6 months?
Answer
  • 3.75%
  • 4.59%
  • 5.26%
  • 6.37%

Question 4

Question
Refer to the table 6.1. Which of the following terms most accurately describes the forward curve for soybeans over the next two years?
Answer
  • Contango
  • Backwardation
  • Contango and backwardation
  • None of the above

Question 5

Question
Refer to the table 6.1. Given a lease rate of 7.0% on the 24-month corn forward contract, what is the approximate potential arbitrage profit per contract?
Answer
  • 3.68 cents
  • 4.48 cents
  • 5.84 cents
  • 6.90 cents

Question 6

Question
Refer to the table 6.1. The lease rate on the 6-month soybean contract is 0.35%. What is the implied annual storage cost if the cost is continuously paid and proportional?
Answer
  • 0.84%
  • 1.62%
  • 2.30%
  • 4.0%

Question 7

Question
The spot price of gasoline is 258 cents per gallon and the annualized risk free interest rate is 4.0%. Given a lease rate of 1.0%, a continuously paid storage rate of 0.5%, and a convenience yield of 0.75%, what is the no-arbitrage price range of a 1-year forward contract (in cents)?
Answer
  • 265.19 to 267.19
  • 258 to 265.19
  • 258 to 267.19
  • 247.16 to 265.19

Question 8

Question
Nine-month gold futures are trading for $1565 per ounce. The spot price is $1509 per ounce. LIBOR during each of the upcoming 4 quarters is listed as 1.04%, 1.22%, 1.30%, and 1.35%, respectively. Calculate the 9-month lease rate on the futures contract.
Answer
  • 2.4%
  • 2.1%
  • 1.3%
  • 0.0%

Question 9

Question
Forward prices for gold, in dollars per ounce, for the next five years are 1350, 1400, 1560, 1675, and 1756, respectively. A mine can be opened for 3 years at a cost of $2,000. Annual mining costs are a constant $500 and interest rates are 5.0%. When should the mine be opened to maximize NPV?
Answer
  • Year 1
  • Year 2
  • Year 3
  • Never

Question 10

Question
The 6-month futures price for oil is $96.60 per barrel (or 2.30 cents per gallon). The 6-month futures prices for gasoline and heating oil are 2.50 cents and 2.15 cents, respectively. What is the gross margin on a simple 3-2-1 crack spread?
Answer
  • $0.25
  • $0.35
  • $0.54
  • $0.68

Question 11

Question
The spot price of corn is $5.85 per bushel. The opportunity cost of capital for an investor is 0.5% per month. If storage costs of $0.04 per bushel per month are factored in, all else being equal, what is the likely price of a 4-month forward contract?
Answer
  • $5.808
  • $5.736
  • $5.968
  • $6.006

Question 12

Question
The spot price of corn is $5.82 per bushel. The opportunity cost of capital for an investor is 0.6% per month. If storage costs of $0.03 per bushel per month are factored in, all else being equal, what is the future value of storage costs over a 6-month period?
Answer
  • $0.1534
  • $0.1684
  • $0.1772
  • $0.1827

Question 13

Question
Oil is selling at a spot price of $42.00 per barrel. Oil can be stored at a cost of $0.42 per barrel per month. The opportunity cost of capital is 7.2% per year (or 0.6% per month). What is the gain or loss realized by an oil refinery that floats its exposure and purchases oil on the spot market in 2 months at a price of $43.00 per barrel, instead of hedging with a forward contract?
Answer
  • $0.35 gain
  • $0.35 loss
  • $1.00 gain
  • $1.00 loss
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