JUCIA WANTA SIANIPAR

023143011

Due Date: May 25, 2017

Submission: Via email to fhputra1@gmail.com or assignment drop box via Google
Drive

Problem A Bond Valuation

Blake Corp., a pharmaceutical company based in Louisville, KY, issued bonds to
fund their expansions. You are an investor who is interested to invest in Blake
Corp.’s bonds. The bond’s par value is $1,000 with coupon rate at 5%, yield to
maturity at 6% and matures in 10 years.

Question:
1. If the bond pays annually, how much is the bond price?
2. If the bond pays semi-annually, how much is the bond price?
3. Is this a premium or discount bond?

Answer

 Par Value x Coupon Rate
$ 1000 x 5% = $50

Annually
1 1 $ 1000
Po = $50 x (6% − (6% ? 1,06)10
) + 1,0610 = $ ???, ???

 Semi annually ($ 50)/2 = $25

Semi-annually

1 1 $ 1000
PO = $ 25 ? [3% − (3% ? 1,03)20
] + = $ 925, 123
1,0320

Based On both of calculation see the price at the trade now are discount bond. Because
the trade result less than < $ 1000

Problem B / Commodities Futures

Coco Jewelers will need 100 ounces of gold to manufacture their jewelries next year.
Today, at X1, gold spot price is US$ 1,250 per ounce. Coco’s CFO predicts that gold
price will increase one year from now. The CFO then seek for a futures contract at an
exchange for $1,300 per ounce of gold to be delivered next year at X2.

Coco Jewelers will assume loss of USD 100 / ounce (USD1200 – USD 1300) by entering into this contract.Question: 1.000 for 100ounces of gold. the company must . 3.200 per ounce? Show your work! Answer : If gold price is USD 1200 per ounce.000 in control. Coco Jewelers will assume loss of USD 10.1275 USD $ 1 = CAD 1.5%. 2. a Canadian cosmetics company based in Winnipeg. What happens if gold price at X2 equals to the futures contract price? Answer: If the Price of gold equals to future contract price. Because both the parties got not gain/loss. exports US$100..1 (1+2. a cosmetics specialty store based in Boston. The finance managers then did his research in at futures exchanges and figured out that: USD Spot: US$1 = CA$ 1. The payment will be made in full amount one year from now in January 1 X2.5%) IRP at n+1 = USD 1. Meanwhile.300 per ounce? Show your work! Answer : If gold price is USD 1400 per ounce. What happens if gold price at X2 is US$1. Because Betsy’s reports its earnings in Canadian Dollars.1163 So. Coco Jewelers will assume gain of USD 10.000 worth of lipstick to Saphero.01 = CAD 1.exports USD $ 100. Problem C / Currency Futures In January 1 X1 Betsy’s Corp. the parties is break event point. while US$ interest rate is at 1% Question:  Under Interest Rate Parity (IRP) theory.10 = US$ 0.000 for 100ounces of gold. Because of Betsy’s Co. Coco Jewelers will assume gain of USD 100 / ounce (USD 1400 – USD 1300) by entering into this contract Meanwhile.000 for 100 ounces of gold (USD 100 x 100 ounces) and the counterparty will assume loss of USD 10. the finance manager concerns about the exchange rate risks against the US Dollars.9090 CA$ interest rate is at 2. find the optimum price of this futures contract? Show your work! Answer : IRP at n+1 = USD 1 * (1+1%) = CAD 1.10 CA$ Spot: CA$ 1. What happens if gold price at X2 is US$1.000 for 100 ounces of gold (USD 100 x 100 ounces) and the counterparty will assume gain of USD 10..

3. If LLY price at exercise date is $45/ share. hence decides to buy $3 call options to buy LLY stock at $50 strike price. 2. and then sell the share to market price at $ 55/share. the exporter will be gained by anticipating the appreciation of the CA. and Jeremy cancelled by his call options. what happens to Jeremy’s call options? Answer: Assumption. Jeremy must pay $ 3/call option per-share.1163/usd  What happens if the spot price at X2 is higher/lower than the contract price? Explain! Answer a) If the spot price at X2 is < the spot price at X1. what happens to Jeremy’s call options? Answer: Assumption. LLY’s stock is trading at $50/share and Jeremy. In these case we can say “Called in the money “ . SELL at CAD 1. So. If Jeremy will be buy share of LLY at strike $ 50. the exporter will loss. Jeremy will let the “call option to expire out and lost 100%” of her $300 options from the premium ($3 x 100 shares). Problem D / Options Eli Lilly (LLY) is a pharmaceutical company based in Indianapolis. thus the profit is $ 2. what happens to Jeremy’s call options? Answer : If Jeremy will be buy share of LLY at strike $ 50. Jeremy Will be Losses $ 8/share. Extra Credit for Problem D: . This is “called out the money”. And jeremy’s got profit ($ 2 * 100share) = $ 200. If Jeremy will be buy share of LLY at strike $ 50. a finance student at Harvard. Exercise date is one year from now. is interested to buy 100 shares of LLY next year when he graduates from Harvard and receive his $10. IN. If LLY price at exercise date is $53/share. b) If the spot price at X2 is higher than spot price at X1. Question: 1. If LLY price at exercise date is $55/share.000 graduation gift from his grandfather. Jeremy forecasted that LLY’s stock price would eventually increase. and then sell the share to market price at $ 53/share. and then sell the share to market price at $ 55/share.

000 .$ 5.000 . And Now. Jeremy have money $ 4.700.$ 300) = $ 4. ($50 * 100 share = $ 5000) + Premium ( $ 3 call option * 100 share = $ 300). How much money does Jeremy has left to put in his savings account? Answer : Jeremy Buy share of LLY $100 at the strike $ 50/ strike share.Suppose Jeremy decided to buy the call options and 100 shares of LLY stocks. Jeremy Have money ($ 10. Now. So.000 from his father. .700. The graduation gift jeremy’s got $ 10.