assignment/report/paper写作
FINA 2204
Group Assignment Semester 1 2018
Weighting: 30%
Due date: 4pm Friday 18th May
This assignment is to be completed by groups of no more than three students. Students will be allocated into groups during tutorials during Weeks 2 and 3 of the semester.
This assignment includes several questions on material not directly covered in lectures. You are expected to conduct your own research to help answer these questions. Students should not expect either the lecturer or the tutors to provide direct assistance on these questions. A discussion board will be hosted on the LMS for students to ask questions of a general nature. Please post any queries relating to the assignment on the discussion board, rather than email the lecturer or a tutor, so that the response is available for all students to see.
In four questions you are required to complete EXCEL templates that are available on the LMS. You should enter the appropriate figures or formulae only in cells that have been shaded grey. Do not make any changes to the format of the templates. Copy and paste the completed templates into your MS Word document and reformat if necessary. Screenshots taken from a mobile phone and scanned images of EXCEL spreadsheets are not acceptable and will not be marked.
Assignments are to be prepared in MS Word and submitted in PDF on the LMS. Submit the PDF document only separate MS Word or EXCEL files are not acceptable and will not be marked. Please ensure that your tutorial time, tutors name, group number and group member names and student numbers are included on the front page of your submission.
Remember to show all working on written questions.
Following submission of the assignment, SPARKPlus will be used to assess individual contributions to the group assignment. Your final individual score will be weighted by the SPARKPlus score you receive from your peers. Your SPARKPlus score will be based on your performance across seven criteria under three main headings: efficient functioning of the group, respect for others and preparation and timeliness. Further information on SPARKPlus can be found at: http://www.business.uwa.edu.au/learning/spark.
On 28 September 2017 a speculator sells ten November 2017 silver futures contracts on COMEX at a price of US$16.745 per troy ounce. The speculator closes out her futures position on 25 October 2017 at a price of US$16. per troy ounce. The COMEX silver futures contract is written on 5,000 troy ounces of silver and the maintenance margin is set at US$5,900 per contract. The initial margin is set at 110% of the maintenance margin.
Daily settlement prices (in US$ per troy ounce) of the November 2017 silver futures contract during the period 28 September – 25 October 2017 are as follows:
Date
Settlement
price
Date
Settlement
price
28/09/2017 16.811 12/10/2017 17.
29/09/2017 16.642 13/10/2017 17.
2/10/2017 16.62 0 16/10/2017 17.
3/10/2017 16.616 17/10/2017 17.
4/10/2017 16.595 18/10/20 17 16.
5/10/2017 16.611 19/10/2017 17.
6/10/2017 16.763 20/10/2017 17.
9/10/2017 16.941 23/10/2017 17.
10/10/2017 17.176 24/10/2017 16.
11/10/2017 17.102 25/10/2017 16.
Required
(a) At the time the futures position is established, what is the minimum price movement that will generate a margin call? ( 2 marks)
(b) Complete Template A showing the daily marking-to-market (and final settlement) of the speculators futures position. This template is similar in format to Table 2.1 on page 30 in your textbook. ( 6 marks)
(c) Calculate the overall profit/loss of the speculator and decompose this figure into two components: (i) total margin calls, and (ii) the change in the margin account balance. ( 2 marks) Total: 10 marks
The Union Pacific Railroad (UPR) is the largest railroad corporation in the United States, carrying freight over a network of over 30,000 miles of track. UPR consumes nearly 1,100 million gallons of diesel annually, with fuel consumption accounting for over 20% of UPRs operating expenses.
Assume the price UPR pays for its diesel fuel is best approximated by the diesel fuel benchmark Ultra-Low Sulfur No. 2 Diesel Fuel Los Angeles. In the absence of any futures contract on diesel fuel UPR decides to hedge the price risk on its diesel fuel purchases using one of the following nearby NYMEX futures contracts: (i) Crude Oil (Light-Sweet, Cushing, Oklahoma), (ii) RBOB Regular Gasoline (New York Harbor), and (iii) No. 2 Heating Oil (New York Harbor). UPR must determine which one of these three futures contracts is best suited to hedging its diesel fuel price risk.
As UPRs treasury analyst, you download daily data on the prices of diesel fuel and the three NYMEX futures contracts from the US Energy Information Administrations website: Spot prices: http://tonto.eia.doe.gov/dnav/pet/pet_pri_spt_s1_d.htm. Futures prices: http://tonto.eia.doe.gov/dnav/pet/pet_pri_fut_s1_d.htm.
Required
(a) Complete Template B showing the (i) end-of-month prices over the five-year period from January 2013 to December 2017 of diesel fuel and the three nearby NYMEX futures contracts, and (ii) the monthly returns for each price series calculated using the natural logarithm of the price relative to measure returns.^1 ( 8 marks)
(b) Use the monthly return data in an OLS regression model to obtain estimates of the optimal hedge ratio and hedging effectiveness for each of the three futures contracts. Use EXCELs REGRESSION function to perform the regression analysis. Paste a copy of the regression output into the MS Word document and clearly indicate the optimal hedge ratio and hedging effectiveness for each futures contract. ( 9 marks)
(c) Assume UPR decides to hedge with the futures contract that has the greatest hedging effectiveness. How many nearby futures contracts should UPR trade to hedge the price risk on its expected monthly fuel consumption of 9 0 million gallons of diesel fuel? ( 5 mark) Total: 22 marks
(^1) The nearby contract is denoted Contract 1.
On 15 December 2017 the manager of a treasury bond portfolio has three separate issues of Commonwealth Government Treasury bonds in his portfolio. Each bond has a face value of $100.0 0 0 and coupons are paid semi-annually. The size and characteristics of each holding, and yield to maturity as at 15 December 2017 , are reported in the table below.
Maturity
date
Number
held
Coupon
rate
Yield to
maturity
15/0 5 /20 21 250,000 5. 75 % 2 .085%
15/0 7 /202 2 200,000 5.75% 2.205%
21 /04/2023 300,000 5.50% 2.275%
On the same date the March 201 8 three-year treasury bond futures contract was trading at 97.93 on the ASX.
Required
(a) Complete Template C to calculate the bond prices as at 15 December
- Do not use EXCELs PRICE function to calculate bond prices as this function calculates the clean price, not the market or dirty price. Instead use the official basic formula (1) for treasury bonds: http://archive.aofm.gov.au/content/pricing_formulae.asp?NavID= (6 marks)
(b) Complete Template D to calculate the duration of the treasury bonds, and of the treasury bond underlying the three-year treasury bond futures contract, using EXCELs DURATION function. ( 4 marks)
(c) What position must the fund manager take in the March 201 8 three- year treasury bond futures contract to hedge the price risk on the bond portfolio? Report your final answer to the nearest whole number. ( 6 marks)
(d) Now assume that all yields (including the implied yield on the futures contract) rise by 10 basis points immediately after the hedge position is established. Complete Template E showing the recalculation of the bond prices after the rise in market yields. ( 3 marks)
(e) Explain how the hedge established in (c) above helps the bond manager insulate his portfolio from the impacts of the yield change described in (d) above. ( 5 marks) Total: 2 4 marks
An options exchange has a number of European call and put options listed for trading on GEMCO stock. You have been paying close attention to two put options on GEMCO, one with an exercise price of $40 and the other with an exercise price of $42. The former is currently trading at $2.20 and the latter at $4.50. Both options have a remaining life of six months. The current price of GEMCO stock is $41 and the risk-free rate is 4% p.a., continuously compounded.
Required
(a) Explain the arbitrage strategy you would employ to exploit this situation to earn risk-free profits. You should assume that you can borrow or lend at the risk-free rate, short sell shares if necessary and do not face any transaction costs. ( 4 marks)
(b) Demonstrate that the strategy you outline in (a) above satisfies the requirements of an arbitrage strategy that the net cash flow on any date is never negative and is greater than zero on at least one date. ( 8 marks) Total: 1 2 marks
The following table provides information on four European put options written on ALCO stock.
Option
Exercise
Price
Expiration
Date
Option
Price
A $30 15 Sep 201 8 $1.
B $35 15 Sep 201 8 $2.
C $40 15 Sep 201 8 $5.
D $45 15 Sep 201 8 $8.
Ignore any transaction costs other than the initial cost of buying or selling the options.
Required
(a) Complete Template F showing the profit and loss (P&L) from a 2-for- 1 ratio put spread constructed from options A and B for stock prices between $20 and $50 in $1 increments. Create a P&L chart in EXCEL showing the P&L on each option position and the overall strategy. ( 6 marks)
(b) Complete Template G showing the profit & loss from (P&L) a 2-for- 1 ratio put backspread constructed from options C and D for stock prices between $25 and $55 in $1 increments. Create a P&L chart in EXCEL showing the P&L on each option position and the overall strategy. ( 6 marks) Total: 1 2 marks
Paste both the templates and the charts into the MS Word document.
A nine-month American call option on RAYCO stock has an exercise price of $25. The current RAYCO stock price is $25 and the stock price is expected to either rise 15% or fall 12% every three months. RAYCO is expected to pay a dividend of $1.00 in eight months time. The risk-free rate is 3 % p.a. (continuously compounded) for all maturities. The option is to be priced using a three-period binomial model.
Required
(a) Calculate the adjusted stock price at time zero. ( 2 marks)
(b) Draw the stock price tree diagram for the adjusted stock price and show the expiration date payoffs on the call option. ( 6 marks)
(c) Calculate the value of the American call option, being careful to show detailed calculations of the option value at each node. ( 9 marks)
(d) Calculate the value of the right of early exercise embedded in the American call option. ( 3 marks) Total: 20 marks
Copies of the most recent annual reports of Rio Tinto Ltd (FY 2016) and Wesfarmers Ltd (FY 2017) are available on the LMS. Read the sections dealing with risk management and hedging strategy.
Required
(a) Compare and contrast the attitudes of Rio Tinto and Wesfarmers towards hedging foreign currency, interest rate and commodity price exposures. (Word limit: 500 words) ( 15 marks)
(b) Would you recommend any changes to the hedging policy of either Rio Tinto or Wesfarmers? Justify your answer. (Word limit: 150 words) ( 5 marks) Total: 20 marks
Provide a list of any other references you use in a bibliography.