Exam 3: Pricing Forwards and Futures I

An investor enters into a forward contract to buy 5,000 barrels of oil at $80 a barrel in three months.Two months later,suppose that the one-month forward price of oil is $83 a barrel,and the one-month interest rate is 0%.The value of the contract the investor holds after two months is

The price of oil is $100 per barrel.Oil prices are expected to grow at 4% a year.The one-year risk-free rate of interest is 2% in simple terms.It costs $1 to store a barrel of oil for one year.If you observe a one-year forward price of oil of $98,what inference could you draw?

The price of oil is $100 per barrel.Oil prices are expected to grow at 4% a year.The one-year risk-free rate of interest is 2% in simple terms.It costs $1 to store a barrel of oil for one year.If oil has no costs or benefits of carry,what is the theoretical one-year forward price of oil?

A firm enters into a one-year forward contract to buy refined oil.To hedge itself,the firm simultaneously sells one-year futures contracts on crude oil.In which of the following scenarios might the firm come under cash flows pressure related to these contracts?

How many years does it take to double your money if the continuously-compounded interest rate is 6%?

An arbitrage is a strategy where

The presence of the delivery option in a futures contract means that

The spot price of gold is $1000 per oz.The one-year risk-free rate is 2% in simple terms.There are no costs or benefits of holding gold.If the one-year forward price of gold is $103,what can you say about the market?

An investor enters into a forward contract to purchase 100,000 shares of IBM stock in 2 months at prices of $105 per share.After one month,the investor notes that the forward price for the same contract (which now has a one-month maturity)is $103 per share.She also notes that the one-month discount factor is 0.993.The value of the forward contract held by the investor is

Rolling over short-dated futures contracts is the same as taking one long-dated futures contract if

Two assets $A$ and $B$ have the same spot price today.The price of asset $A$ is expected to grow at 10% over the next year and that of asset $B$ is expected to grow at 10% also.Asset $A$ has a standard deviation of returns of 10% over the year and asset $B$ has standard deviation of 15%.Which of the following is true if there are no holding costs or benefits?

The law of one price states that

Two assets $A$ and $B$ have the same spot price today.Asset $A$ is expected to grow at 10% over the year and asset $B$ is expected to grow at 12%.Which of the following is true if there are no holding costs or benefits for either asset?

A month ago,the price of an IBM stock was $110 and its volatility was 28%.Today,its price is still $110 but its volatility has gone up to 40%.If the one-month interest rate has not changed over the last month and IBM stock does not pay any dividends (i.e. ,there are no costs or benefits of carry,)then:

If you wanted to double your money in the same time as in the answer to the previous question,but were using monthly compounding,what would be the rate of interest you would require?

The US dollar-euro spot exchange rate is $1.50/€.If the one-year simple interest rate on dollars is 1% and on euro is 2%,what is the one-year forward rate of dollars per euro?

A stock has a current price of $20.The risk-free interest rate for a half-year maturity is 6% and the dividend rate is 3%.Assume continuous compounding.What is the six-month forward price of the stock?

The spot price of an asset is $50.The expected return on the asset is 10% a year (in simple terms)and the standard deviation of these returns is 20%.The risk-free rate of interest is 5% a year in simple terms.What is the one-year forward price of the asset?

A replicating portfolio for a derivative security is

The replication method identifies the price of a USD/GBP forward rate as a function of