--%>
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 : Problem on stock market John Wong is a

    John Wong is a fresh graduate and has a limited amount of funds for investments. He expects that the Hong Kong stock market will fall soon but he is not familiar with derivatives. In order to gain more money to buy a car, he explores engaging in Hang Seng Index (HSI)

    		•
  • Q : Explain definition of put–call parity

    Explain the definition of put–call parity described by Reinach.

    		•
  • Q : What is the market risk premium What is

    What is the market risk premium within Spain at the present time – the number that I have to use in the valuations?

    		•
  • Q : Problem on Stock per share value ABC

    ABC Company plans to buy back 1 million shares of its own stock from its cash reserves at $50 a share. This will raise the bankruptcy costs by $10 million, and the debt/assets ratio from 35% to 40%. The income tax rate of the company is 30%. Determine the value of the

    		•
  • Q : Does it make sense to apply identical

    The National Company responsible for the company where he work has newly published a document stating as that the levered beta of the sector of energy transportation is as 0.471870073 (it is 9 decimals). They acquired this number by considering the betas into the sect

    		•
  • Q : Explain company creates value for its

    Is this true that a company creates value for its shareholders in a year when this distributes dividends or when the quotation of the shares increases?

    		•
  • Q : Problem about commercial and fiscal

    A court assigned to me (as an auditor and economist) a valuation of a market butcher’s. The butcher’s did not give any simple income statements or any valuable information that I could use in my valuation. This is a small business with just two workers, th

    		•
  • Q : Explain Value Chain Value Chain : The

    Value Chain: The value chain is a theory from business management that was first described and popularized Michel Porter in his 1985 best seller, Competitive Advantage: Creating and Sustaining Superior Performance.

  • Q : Describe nominal gross domestic product

    Nominal gross domestic product: If GDP of a particular year is estimated on the base of price of similar year, it is termed as nominal GDP.

    		•
  • Q : Financing EBIT problem Rusk Inc needs

    Rusk Inc needs $50 million in new capital that it might obtain by selling bonds at par with coupon of 12% or by selling stock at $40 (net) per share. The current capital structure of Rusk consists of $300 million (face value) of 10% coupon bonds selling at 90 and 10 m

    		•