Questions from Business Statistics

Q: Suppose that F1 and F2 are two futures contracts on the same

Suppose that F1 and F2 are two futures contracts on the same commodity with times to maturity, t1 and t2, where t2 > t1. Prove that where r is the interest rate (assumed constant) and there are no...

Q: When compounded annually an interest rate is 11%. What is the

When compounded annually an interest rate is 11%. What is the rate when expressed with (a) semiannual compounding, (b) quarterly compounding, (c) monthly compounding, (d) weekly compounding, and (e) d...

Q: How is an ABS CDO created? What was the motivation to

How is an ABS CDO created? What was the motivation to create ABS CDOs?

Q: When a known future cash outflow in a foreign currency is hedged

When a known future cash outflow in a foreign currency is hedged by a company using a forward contract, there is no foreign exchange risk. When it is hedged using futures contracts, the daily settleme...

Q: Show that the growth rate in an index futures price equals the

Show that the growth rate in an index futures price equals the excess return on the portfolio underlying the index over the risk-free rate. Assume that the risk-free interest rate and the dividend yie...

Q: Draw a diagram showing the variation of an investor’s profit and loss

Draw a diagram showing the variation of an investor’s profit and loss with the terminal stock price for a portfolio consisting of : (a) One share and a short position in one call option (b) Two shares...

Q: How were the risks in ABS CDOs misjudged by the market?

How were the risks in ABS CDOs misjudged by the market?

Q: What is the difference between the forward price and the value of

What is the difference between the forward price and the value of a forward contract?

Q: A trader enters into a short forward contract on 100 million yen

A trader enters into a short forward contract on 100 million yen. The forward exchange rate is $0.0090 per yen. How much does the trader gain or lose if the exchange rate at the end of the contract is...

Q: Show that equation (5.3) is true by considering

Show that equation (5.3) is true by considering an investment in the asset combined with a short position in a futures contract. Assume that all income from the asset is reinvested in the asset. Use a...