SHOW WORK FOR ALL PLEASE 67.10) Complete the table. Country Big Mac in Local Pri
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SHOW WORK FOR ALL PLEASE
67.10) Complete the table.
Country
Big Mac in
Local Price
Actual Exchange Rate
Big Mac Price
in Dollars
Implied PPP
of Dollar
(U)nder or (O)ver
Valuation
USA (dollar)
3.73
---
3.73
1.00
---
Hungary (Forint)
740
3.33
Saudi Arabia (Riyals)
10.0
2.67
April 19, 2009, British Pound Option Prices (cents per pound, 62,500 pound contracts).
89.1) Refer to above Table. Total price of a June 1450 Call is ________.
Use the information for Polaris Corporation to answer following question(s).
Polaris is taking out a $10,000,000 two-year loan at a variable rate of LIBOR plus 1.00%. The LIBOR rate will be reset each year at an agreed upon date. The current LIBOR rate is 3.00% per year. The loan has an upfront fee of 2.00%
89.2) What is the all-in-cost (i.e., the internal rate of return) of the Polaris loan including the LIBOR rate, fixed spread and upfront fee?
89.3) Complete the table given that a call is bought on yen with a strike of ¥120.00/$ at a premium of 0.0075 cents per yen and an expiration of six months from now. The option is for ¥12,500,000.
Ending Spot at Maturity
Profit or Loss
¥110/$
¥115/$
¥120/$
¥125/$
89.4) Johnson Industries is currently paying a variable rate of LIBOR+3% on a loan and desires greater certainty with regard to their loan payments. Refinancing is currently not available, so Johnson Industries decide to pursue an interest rate swap agreement. The swap terms are LIBOR for 4%. What is Johnson Industries after swap loan cost and is it variable or fixed?
89.5+89.6) A trader use futures to speculate on the British pound. Each contract is for £62,500.
89.5) If the trade buys 8 pound futures at $1.4228/£ and the spot rate at maturity is $1.4362/£, then what is the value of the position at maturity?
89.6) If the trade sells 3 pound futures at $1.4162/£ and the spot rate at maturity is $1.4362/£, then what is the value of the position at maturity?
Country
Big Mac in
Local Price
Actual Exchange Rate
Big Mac Price
in Dollars
Implied PPP
of Dollar
(U)nder or (O)ver
Valuation
USA (dollar)
3.73
---
3.73
1.00
---
Hungary (Forint)
740
3.33
Saudi Arabia (Riyals)
10.0
2.67
Option & Strike Calls-Last Puts-Last Underlying Price 1440 1450 1460 1448 1448 1448 May June July May June July 0.881.42 1.42 0.52 1.06 0.42 1.02 0.200.680.72 2.32Explanation / Answer
Answer to 89.5
Strike Price = $1.4228/Pound
Spot Price = $1.4362/Pound
Profit per contract = ($1.4362 - 1.4228)/Pound * 62,500 Pounds
Total Profit for the trader = ($1.4362- 1.4228) X 62500 Pounds X 8 contracts
= 6,700 $
Answer to 89.6
Seller of the futures contract, gains when the spot price n maturity is less than strike price
Strike Price = 1.4162$/Pound
Spot rate = $1.4362/Pound
Total Profit = (1.4362-1.4162) X 62500 Pounds X 3 contracts
= 3,750$
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