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Currency 700 billion
money market mutual funds 2,000 billion
demand deposits 300 billion
other checkable deposits 300 billion
traveler's check 10 billion
Last Open High Open Low High Low Most Recent Change
Nov 2007 80.25 81.55 81.45 82.02 79.45 80.24s 0.01
Dec 2007 79.28 80.35 80.3 80.8 78.5 79.28s 0.00
Jan 2008 78.44 n/a 79.58 79.9 77.75 78.50s -0.06
Feb 2008 77.68 n/a 78.85 78.86 77.22 77.87s -0.19
Mar 2008 77.32 n/a 78.25 78.62 76.75 77.34s -0.02
April 2008 76.83 n/a 77.61 77.61 76.28 76.86s -0.03
(a) Here the futures price is lower the greater the time to expiration; what does this imply about the convenience yield of oil? Specifically, is it greater than the cost of carrying oil? (Hint: carry cost model).
Fixed rate Floating rate
Firm A 8% LIBOR + 1%
Firm B 9% LIBOR + 1.4%
Premium paid by B over A 1% 0.4%
Also assume that A ultimately wants a floating rate loan while B wants a fixed rate loan. Design an interest rate swap so that both can benefit, assuming that no swap bank is involved
Strike Price Open High Low Last sett
1540 -- -- -- -- 31.70
1600 1.70 3.60 1.70 3.00 3.35
(a) Which option is in the money?
(b) Decompose the value of 1540 call, $31.7, into intrinsic value and time value.
(c) Again using the call with exercise price of 1540, what would be your cash proceeds if you exercise the option on October 1 (index options are settled by cash)? Assume that both dividends and transaction costs are small enough to be ignored. Based on this answer and answer on (b), does it make sense to exercise an American call before expiration?
(d) Assume that put-call parity holds for these options. What should be the value of a PUT on S&P 500 with exercise price of 1600? Assume that the annual risk-free rate is 5%