A corporation is willing to borrow 100 million dollars in 6 months for 4 months. Today is 1st of March. As it thinks that the interest rate is going to increase in 6 months and accordingly, the corporation locks into a forward rate agreement at a rate of 3.5%. If LIBOR rate in August is 4%. What is the payoff received by the corporation from entering into forward rate agreement received in August?
a. 0.67 million dollars
b. 0.48 million dollars
c. -0.67 million dollars
d. 1 million dollars
2. Consider a European call option with a price C = $2.13, ? = 0.6, and G = 0.09 which is written on a stock with the current price S0 = $25. Assuming that the underlying stock price S moves from $25 to $29, what is the delta-gamma approximation of this call option value?
- $5.25
- $2.01
- $3.28
- $1.57
3. Golden needs to borrow £100 million to finance new factory in two months from now. The company expect that interest rates will be higher and would like to use interest rate futures contracts. The current price of the sterling futures contract is 97.5. The size of the sterling futures contract is £500,000, and the minimum price movement for each basis point change in interest rate is £12.5. How many contracts that the company need to buy or sell and what is the Profit/Loss of the company in the futures transaction if the LIBOR rate in two months is 3%?
a. Buy 100 contracts; the Profit/Loss is – £250,000
b. Buy 200 contracts, Profit/Loss is £125,000
c. Sell 200 contracts, Profit/Loss is £250,000
d. Sell 100 contracts, Profit/Loss is £150,000
