Questions from Business Statistics

Q: Repeat the previous problem, but now assume that the one-

Repeat the previous problem, but now assume that the one-month LIBOR rate on December 1 was 5.5 percent.

Q: The Black–Scholes–Merton option pricing model assumes that stock

The Black–Scholes–Merton option pricing model assumes that stock price changes are log normally distributed. Show graphically how this distribution changes when an investor is long the stock and short...

Q: On September 12, the cheapest-to-deliver bond on

On September 12, the cheapest-to-deliver bond on the December Treasury bond futures contract is the 9s of November YY 18. The bond pays interest semiannually on May 15 and November 15. Its price is 12...

Q: A U.S. corporation is considering entering into a currency

A U.S. corporation is considering entering into a currency swap that will call for the firm to pay dollars and receive British pounds. The dollar notional amount will be $35 million. The swap will cal...

Q: A pension fund wants to enter into a six-month equity

A pension fund wants to enter into a six-month equity swap with a notional amount of $60 million. Payments will occur in 90 and 180 days. The swap will allow the fund to receive the return on a stock...

Q: You are a pension fund manager who anticipates having to pay out

You are a pension fund manager who anticipates having to pay out 8 percent (paid semiannually) on $100 million for the next seven years. You currently hold $100 million of a floating-rate note that pa...

Q: A hedge fund is currently engaged in a plain vanilla euro swap

A hedge fund is currently engaged in a plain vanilla euro swap in which it pays euros at the euro floating rate of Erabor and receives euros fixed. It would like to convert this position into one in w...

Q: Define and explain a constant maturity swap.

Define and explain a constant maturity swap.

Q: a. Identify and discuss three reasons why U.S.

a. Identify and discuss three reasons why U.S. Treasury yields are a biased low estimate for the risk-free rate. b. Explain why LIBOR is a biased high estimate for the risk-free rate. c. Explain the r...

Q: Compare and contrast the credit value adjustment and the debit value adjustment

Compare and contrast the credit value adjustment and the debit value adjustment for an interest rate swap. Why does a swap’s value increase when the firm’s credit rating deteriorates?