1) Two months from today you plan to borrow $3 million for 3 months at LIBOR. You hedge your interest rate risk with a euro dollar futures contract priced at 93.6. If settled in arrears, what is your payment if the 3-month LIBOR rate is 2.5% (not annualized) in two months?
2) IBM and AT&T decide to swap $1 million loans. IBM currently pays 9.0% fixed and AT&T pays 8.5% on a LIBOR+ 0.5% loan. What is the net cash flow for IBM if they swap their fixed loan for
a LIBOR+ 0.5% loan and LIBOR rises to 8.5%?
3) The S&P 500 Index price is 1492.28 and its annualized dividend yield is 2.30%. LIBOR is .2%. How many futures contracts will you need to hedge a $240 million portfolio with a beta of 1.16 for one year? (Show your Work)
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4) The annual coupon rate on a 1-year treasury bond is 5.5%. The coupon on a 2-year treasury bond is 5.8%. What is the implied 1 year forward rate?
5) Three months from today you plan to borrow $1.8 Billion for 6 months at LIBOR. You hedge 65% of your interest rate risk with a euro dollar futures contract priced at 99.2. If settled in arrears, what is your payment if the 6-month LIBOR is .28% in two months?
6) The current currency spot rate is $1.30 per euro. If dollar denominated interest rates are .24% and euro denominated interest rates are .2%, what is the likely dollar per euro value of
a 2 year forward contract
7) The S&P 500 Index is priced at $1450.91. The annualized dividend yield on the index is 2.10%. The continuously compounded annual interest rate is .12%. What is the price of a forward contract that expires 18 months from today?
8) Six months from today you plan to borrow $433 million for 6 months at LIBOR. You hedge 100% of your interest rate risk with a euro dollar futures contract priced at 99.4. If settled in arrears, what is your payment if the 6-month LIBOR is 2.5625% in six months?