Accounting And Finance Portfolio Creation Assignment
Portfolio A consists of a one-year zero-coupon bond with a face value of $X,000 and a 10-year zero-coupon bond with a face value of $X,000.
Portfolio B consists of a 5.95-year zero-coupon bond with a face value of $X,500.
The current yield on all bonds is 10% per annum (continuously compounded).The duration of Portfolio A is equal to Answer . Enter to 2 decimal places (e.g. 2.XX) The percentage change for a 0.5% per annum increase in yield for Portfolio A will Answer the value. 2. The percentage change for a 0.5% per annum increase in yield for Portfolio A will change the value by Answer . Enter to 2 decimal places (e.g. 2.XX) A financial institution has the following portfolio of over-the-counter options on Canadian dollar: Type Position Delta of Option Gamma of Option Vega of Option the portfolio both gamma and delta neutral is XXX Answer . Enter dollar value and cents (e.g. 1000.10) X. A company's investments earn LIBOR minus 0.5%. Table Swap quotes made by market maker (percent per annum) Maturity (years) Bid Offer Swap rate 2 2.55 2.58 2.565 X 2.9X X.00 2.985 X X.15 X.19 X.1X0 5 X.26 X.X0 X.280 X X.X0 X.XX X.X20 10 X.X8 X.52 X.500 Use the Table to explain how the company can use the quoted rates to convert the investments to a two-year and seven-year fixed-rate investment, respectively. By entering into a two-year swap where it receives Answer % and pays LIBOR, the company earns Answer % for two years. Enter to 2 decimal places (e.g. 2.XX) By entering into a seven-year swap where it receives Answer % and pays LIBOR, the company earns Answer % for seven years. Enter to 2 decimal places (e.g. 2.XX) The company also borrowed money at 5.1% for five years and wishes to convert this borrowing to a floating-rate liability by making use of the swap quotes in the table. It enters into a five-year swap where it receives Answer % and pays Libor. Enter to 2 decimal places (e.g. 2.XX) X. A company's investments earn LIBOR minus 0.X8%.
Table Swap quotes made by market maker (percent per annum) Maturity (years) Bid Offer Swap rate 2 2.55 2.58 2.565 X 2.9X X.00 2.985 X X.15 X.19 X.1X0 5 X.26 X.X0 X.280 X X.X0 X.XX X.X20 10 X.X8 X.52 X.500 The company can use the quoted rates to convert its investments to a five-year fixed-rate investment by entering into a five-year swap where it receives Answer % and pays LIBOR. Enter to 2 decimal places (e.g. 2.XX) Therefore, the company will earn a rate of Answer % for five years. Enter to 2 decimal places (e.g. 2.XX) 5. An analyst for Bloom Ltd gathered the following information with regards to futures contract:
• Current spot-market price of R60 • A risk-free interest rate of 8.8X% per annum
• The six-month futures contract is priced at R62.60 The actual futures price of the contract is R59. The actual futures price is Answer the theoretical futures price. The futures price is Answer .
Arbitrage strategy:
• Answer futures contract at R59
• Answer the underlying R60
• Answer at risk-free rate for six months 6. A financial institution has the following portfolio of over-the-counter options on Canadian dollar:
Type Position Delta of Option Gamma of Option Vega of Option Call ?1,100 0.55 2.X 1.X Call ?550 0.82 0.X 0.2 Put ?2,100 ?0.XX 1.2 0.8 Call ?550 0.X1 1.X 1.5 A traded option is available with a delta of 0.6, a gamma of 1.6, and a vega of 0.X5. What position in the traded option and in the Canadian dollar would make the portfolio vega neutral?
A Answer position in Answer traded options will give a vega-neutral portfolio since the Answer position has a vega of Answer X X85. The delta of the whole portfolio (including traded options) is then Answer Enter to 2 decimal places (e.g. 2.XX) X.
An investor enters into a futures contract to sell white maize for RXX00 per tonne. The contract is for the delivery of 1000 tonnes. The initial margin is R550 000, and the maintenance margin is R250 000. The investor will make a Answer at the end of the contract if the price is RX620 per tonne. The amount of profit/loss that the investor made on the contract is RAnswer . The investor will make a Answer at the end of the contract if the price of white maize is RX920 per tonne. The amount of profit/loss that the investor made on the contract is RAnswer .
