--%>
Assignment Help - homework help

Problem on HIBOR

Below are the three-month HIBOR and three-year EFN futures (that is, Exchange Fund Note) prices for the September 2010 contracts.

a) Find out the HIBOR in three-months for settling the future contract utilizing the quotation on August 16.

b) Assume an investor sold one contract of three-month HIBOR futures on August 16 and closed it out on the August 20. Compute the profit or loss of this investor.

c) Assume an investor bought one contract of three-year EFN futures on August 16 and closed it out on August 20. What would be the gain or loss of this investor?

E

Expert

Verified

a) HIBOR in three months for settling the futures will be determined by multiplying the quoted price on AUG 16 with the minimum fluctuation and multiplying by 100.

The minimum fluctuation is calculated based on the contract price multiplied by the basis point for each quarter.

The contract size is HK$ 5000000 and the basis point is .0001
Hence minimum fluctuation will be HK$ 5000000x.0001x0.25= HK$125

Hence the HIBOR rate will be 99.670 x.0001x0.25=.00249175+ 99.67= 99.6725

b) Each contract will be $5000000. If he sells at 3 months HIBOR then the value would be 99.6725 (5000000x.0001x0.25) X 100 = $ 1245906.250

Further if he closes then on Aug 20, at 99.74 then the value would be 125x99.74x100=$1246750.000, he will gain $ 843.75

c) The size of each three year EFN futures is $1000000 with a coupon of 6 %. The investor has bought EFN for a value of $ 1000000 x114.31= $114310000 and he has closed this on Aug 20th at 114.38 giving him a value of $1000000x114.38=$ 114383000.

He has gained $ 73000 ( $114383000 – $114310000)

   Related Questions in Corporate Finance

  • Q : Price per share for Corporation For XYZ

    For XYZ Corporation debt-to-equity ratio, marginal tax rate, and dividend payout ratio are all of 40%. The cost of debt is 10%. Cambria contains 1 million shares of common stock, and $25 million in long-term bonds. Its dividend is $1 per share. Determine the EBIT and

    		•
  • Q : What is Regular supply of working

    Regular supply of working capital: The working capital requirement (WCR) estimation helps to ensure that the supply of raw material, which is essential to production, is uninterrupted. Therefore, the firm will be able to get sufficient credits and fun

    		•
  • Q : Does value of the company increase when

    According to the valuation method depends on tax shields, the value of the company (Vl) is the value of the unleveraged company (Vu) in addition with the value of tax shields (VTS), thus, the higher the interest and the higher the VTS. Therefore, does

    		•
  • Q : Sinking Fund problem Berks Corporation

    Berks Corporation is expecting to have EBIT next year of $12 million, with a standard deviation of $6 million. Berks have $30 million in bonds with coupon of 10%, selling at par, which are being retired at the rate of $2 million annually. Berks also have 100,000 share

    		•
  • Q : Explain investment of bank for

    When my company is not listed, therefore the investment banks apply an illiquidity premium. In fact, they say this is an illiquidity premium but then they call this a small cap premium. Only one of the banks, apparently based upon Tit

    		•
  • Q : Capital Structure Case Study 1 You work

    Case Study 1 You work in Walt Disney Company's corporate finance and treasury department and have just been assigned to the team estimating later today. You quickly realize that the information you need is readily available online. 1) Go to http://finance.yahoo.com. under " Market Summary," you

    		•
  • Q : Affect the value of the stock Is the

     Is the value of this stock dependent on how long you plan to hold it? In other words, if your planned holding period were 2 years or 5 years rather than 3 years, would this affect the value of the stock today, P0? Explain your answer.<

    		•
  • Q : What is optimal capital structure What

    What is optimal capital structure?

    		•
  • Q : PV of Dividends PV of dividends:

    PV of dividends: Cortez, Inc., is expecting to pay out a dividend of $2.50 next year. After that it expects its dividend to grow at 7 percent for the next four years. What is the present value of dividends over the next five-year period if the required rate of return is 10 percent?

    		•
  • Q : Do expected equity flows coincide with

    Do expected equity flows coincide along with expected dividends?

    		•