Sie sind auf Seite 1von 12

Numerical Problems.

(Fin
Markets)
Ashoka Kanetkar
May 2008

Problems

Find the equivalent CC interest rate


for 10.5% annual rate compounded
every six months.
Find the annual rate, compounded
every three months if the CC rate is
7.5%.
Prove that CC rate is always less than
the annual rate.

Problems

If the annual rate in India is 10% and in


the US it is 7%. If the spot rate is I Dollar
= 40.23 INR what will be the expected
forward rate for 3 months forward.
A bill of face value of Rs. 750 is maturing in
3 months. It is discounted at 15% annually
compounded rate immediately. It is then
discounted again, at same rate 25 days
before expiry. Calculate the amount of cash
received on both occasions. Use CC rates of
interest.

Problems

Give the mathematical relationship


between annual and continuous
compounded rates.
Spot rate of gold is 9700 per 10
grams. A future contract is available
at 9880. Expiry after 20 days. Annual
rate of interest is 12%. Is there an
arbitrage possibility and if so what
would you do?

Problems

Prove that the forward rate in


domestic foreign exchange market for
a foreign currency will always be at a
premium if the domestic interest rate
is higher than the foreign interest
rate.
Give the interest rate parity equation
in annual rates and establish the
same for CC rates.

Problems

A zero coupon bond of face value Rs. 1000,


maturing after 2 years is available for Rs.
923 today. What is the interest rate
applied, in Cont. Compounding as well as
annual compounding?
A commodity futures contract is available at
Rs. 1570 maturing after one month. The
spot price is Rs. 1590. RIFIR is 8%. A
holder of commodity refuses to sell the
commodity. Quantify the advantage he is
getting.

Problems

The current price of silver is $9 per


ounce. The storage costs are $0.24
per ounce per year payable quarterly
in advance. Assuming that interest
rates are 10% CC for all maturities
calculate the futures price of silver for
delivery after nine months.

Problems

The two month interest rates in


Switzerland and US are 3% and 8%
per annum CC respectively. The spot
price of Swiss Franc is $0.6500. The
futures price for a contract deliverable
in two months is $0.6600. What
arbitrage opportunities does this
create.

Problem
A stock is expected to pay a dividend of Rs.
1 per share in two months and five months.
The stock price is Rs. 50. The RFIR is 8%
CC. An investor has just taken a a short
position in a six month forward contract on
the stock.
What is the forward price of the?
Three months later price in spot is Rs. 48.
Is investor making profit or loss after three
months?

Problem

In a zero coupon bond if the interest rate


goes up the spot price of the bond should
come down and vice versa. Why?
A 12% bond of face value Rs. 1000 has
three years to maturity. Interest is paid
every six months. The RFIR is 10% CC.
What should be the spot price of the bond
today. If the rate changes after one year to
11% what should be the spot price.

Problems

A trader buys a European put option at Rs.


3. The strike price is Rs. 40 and the stock
price is Rs. 42. Should the option be
exercised. At what price will the trader
make a profit? Draw a diagram.
A trader buys a call option with a strike
price of Rs. 45 and a put option with a
strike price of Rs. 40. The call costs Rs. 3
and the put costs Rs. 4. Draw a diagram
showing the variation of the traders profit.

Problems

Suppose that Pound to Dollar spot and


forward rates are as follows:

Spot 1.6080
90 day forward 1.6056
181 day forward 1.6018

What opportunities are open to an arbitraguer


in the following situations:

A 180 day European call option to buy 1 pound


at $1.57 costing 2 cents.
A 90 day European put option to sell 1 Pound for
$ 1.64 costing 2 cents.