--%>
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 : Continuously compounded rate of return

    Solve for the stated annual rate, r equal to the continuously compounded rate of return implicit in turning $1 at the end of 1925 (beginning of 1926) into these reported valued from RWJ9 in 2008 Figure below: 1. Determine the state

    		•
  • Q : Problem regarding purchasing machine

    Alger Corp needs to buy some construction equipment for $50,000 that has a helpful life of 4 years with no salvage value. The Alger utilizes straight-line depreciation. Alger contains a tax rate of 30%, and it employs a discount rate of 10%. The equipment will produce

    		•
  • Q : Relation between book value of shares

    Is the relation in between book value of shares or capitalization a good guide to investments?

    		•
  • Q : Leverage ratio problem Handy Inc has

    Handy Inc has debt-to-assets ratio of 40%, tax rate of 35%, and total value of $100 million. W. C. Handy, the CFO, would like to increase the leverage ratio to 42%, and he believes that there will be no change in the bankruptcy cost of the company. How many dollars wo

    		•
  • Q : Public Finance which type of tax,

    which type of tax, direct or indirect is applicable in underdeveloped countries? Why? Show your critical areas and weaknesses.

    		•
  • Q : Who proposed modern quantitative

    Who proposed a modern quantitative methodology for portfolio selection?

    		•
  • Q : Valuation & Merger analysis Problem

    Problem 21-1 Valuation Harrison Corporation is interested in acquiring Van Buren Corporation. Assume t

    		•
  • Q : Who explained the high-peak/fat-tails

    Who explained the high-peak/fat-tails?

    		•
  • Q : How can industrial company inflate

    How can any industrial company inflate the value of its inventory so as to decrease net income and the taxes is has to pay in a year?

    		•
  • Q : Who described option pricing with

    Who described option pricing with deterministic volatility?

    		•