Question 1: A company enters into long futures contracts to buy 1,000 barrels of

Question

Question 1:

A company enters into long futures contracts to buy 1,000 barrels of oil for $56 per barrel. The initial margin is $12,000 and the maintenance margin is $4,000. What oil futures price will trigger a margin call?

Question 2:

A quoted price of 6% semiannual T-bond that measures on 7/15/2015 is 91-25. Today is 4/15/2010. What is the cash price? Round the number to the nearest 2 decimal points (margin of error = +/- $0.10)

Question 3

An interest rate is 6.33% per annum when expressed with semiannual compounding. What is the equivalent rate with continuous compounding? Report the answer in % and round the number to the nearest 2 decimal percentage points such as 5.75% (margin of error = +/- 0.05%).

Question 4

The 12-month, 15-month, 18-month zero rates are 7.4%, 7.5%, 7.6% with continuous compounding. What is the value of an FRA that enables the holder to earn 8% (with semiannual compounding) for a 6-month period strating in one year on a principal of $1,000,000?

Explanation / Answer

An interest rate is 6.33% per annum when expressed with semiannual compounding. What is the equivalent rate with continuous compounding? Report the answer in % and round the number to the nearest 2 decimal percentage points such as 5.75% (margin of error = +/- 0.05%).

Continuous compunding formula is:

A = P*ert

Semi-annual rate is 6.33 per annum.

So, (1 + 0.0633/2)^2 = (1 + r)

if r is the annual compounding rate.

So, r = 0.0643 or 6.43%

Now, ert = (1.0664)t

So, continuous rate will be 6.64%

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