---

Overview

55
56
57
58
Arkusz1
Arkusz3
Arkusz2
59
60
61

---

Sheet 1: 55

Futures. Marking-to-market
Problem 55
Tri-Mark receives a $1200,000 from a major contract on December 18. These funds
are not needed for six days and, rather than putting them into short-term marketable
securities Tri-Mark's Chief Financial Officer (CFO) wants to use these funds to
speculate in pork bellies. He purchases 55 contracts. Traded on the
Chicago Mercantile Exchange (CME), each pork belly futures contract is for
40,000 pounds and requires a $2,150 initial margin and $1,800 maintenance margin.
The current futures price for February delivery is $0,5380. The contracts are
purchased at this price.
(a) What is the initial value of Tri-Mark's margin account ?
(b) Immediately after the CFO purchases the contracts, the government issues
a major report on dietary fat that is expected to reduce the public's bacon
consumption. On succeeding days after the purchase of the contracts, pork
belly futures trade at $0,5312, $0,5300, $0,5120, $0,4998, $0,4887, and $0,4880.
Compute the changes in the margin account on each of these days.
Assuming that Tri-Mark closes its position at the end of sixth day, what
is its profit/loss on its speculation ?

---

Sheet 2: 56

Futures & Options
Problem 56
A distributor has just purchased DM 375 000 worth of fine German beer for
the central Ohio market and must pay for the beer in 90 days. The distributor
is concerned about changes in the value of the German mark during that
period. It has accumulated the following information:
Today's spot exchange rate: So ($/DM) = 0,5019
Exchange rate available on three-month futures contract: F1,4 ($/DM) = 0,5028
Distributor's estimate of the spot exchange rate in three months: S1,4 ($/DM) = 0,5050
	Option information			Call option	Put option
	Contract size		DM	62,500.000	62,500.000
	Exercise price		$/DM	0.5050	0.5060
	Premium		$/DM	0.0010	0.0012
(a) If the distributor remains unhedged, how much will he expect to pay
in dollars for the beer ? Draw the payoff pattern.
(b) If currency futures contracts are used to hedge (each contract is for DM
125 000), how much will the distributor pay in dollars for the beer ? Draw								$	189375
the payoff pattern for the futures contract and for the hedged position.
(c) If the distributor hedges this exposure with an option, which type of option									188550
should he use ? Assuming that the distributor's estimate of the future spot
rate is accurate, should the distributor exercise this option ? If the distributor
exercises the option, how many dollars will he pay for the beer ? Draw
the payoff pattern for the option contract and for the hedged position.
(d) Given your answers to the above questions, which is the better way to
hedge the distributor's currency risk ?

---

Sheet 3: 57

Option characterictics
Problem 57
A firm is thinking of purchasing a put option on the DM. The option has
an exercise price of $0,5000 and a premium of $0,05. The current spot
rate is $0,5300.
(a) Draw the payoff diagram for the option, labelling all of its parts.
(b) Is the option in or out of the money ? By how much ?
(c) What is the intrinsic value of the option ?
(d) What is the time value of the option ?
				0	1	2	3	4	5	6	7	8
					-400	120	120	120	120	120	120	120
			280,347.44 zł			112,138.97 zł
			-495,238.10 zł		-520	-297,142.86 zł
						-185,003.88 zł

---

Sheet 4: 58

Call or Put Option
Problem 58
A person interested in speculating in the DM has gathered the following
information:
Today's spot exchange rate: So ($/DM) = 0,5019.
Estimate of the spot exchange rate in six months: S1/2 ($/DM) = 0,5045.
	Option information		Call option	Put option
	Contract size	DM	62.500	62.500
	Exercise price	$/DM	0.5050	0.5060
	Premium	$/DM	0.0010	0.0012
Should he buy a call option or a put option? What will the profits in dollars
be from this strategy if one DM option contract is purchased?

---

Sheet 5: Arkusz1

	Dzień	Cena akcji	stopa zwrotu z akcji	okres opcji	Cena rozl. 22	Cena rozl. 19	Dzień	DELTA (22)	DELTA (19)	RHO (350)	RHO (380)	RHO (350)	RHO (380)			D1(1)	D1(2)	D2(1)	D2(2)					Parametry
	0	24.0		90	#VALUE!	#VALUE!	0	0.85	0.99	0.04	0.05	0.82	0.99			1.0253137698963	2.49134851181505	0.925313769896297	2.39134851181505					Cena akcji	24
	1	24.08	0.003416477702192	89	#VALUE!	#VALUE!	1	0.86	0.99	0.04	0.05	0.83	0.99			1.06362138690397	2.53786927287247	0.964178494302796	2.4384263802713					r - wolna od ryzyka	4.2%
	3	24.16	0.003404845124744	87	#VALUE!	#VALUE!	2	0.87	1.00	0.04	0.05	0.84	0.99			1.10684130198773	2.59793828229062	1.00852209396271	2.4996190742656					Odch. stand stopy zwrotu	0.2
	6	24.25	0.003393291492748	84	#VALUE!	#VALUE!	3	0.88	1.00	0.04	0.05	0.86	1.00			1.1561424712828	2.67363259757903	1.05953329297487	2.5770234192711					p =	40%
	9	24.33	0.003381816005267	81	#VALUE!	#VALUE!	4	0.89	1.00	0.04	0.05	0.87	1.00			1.20749202167629	2.75282832614309	1.11262369187124	2.65795999633804
	12	24.41	0.003370417872163	78	#VALUE!	#VALUE!	5	0.90	1.00	0.04	0.05	0.88	1.00			1.26108010595689	2.83585403277676	1.16798517233177	2.74275909915164					WIBOR2W	4.61%
	15	24.49	0.003359096313912	75	#VALUE!	#VALUE!	6	0.91	1.00	0.04	0.05	0.89	1.00			1.31712270307057	2.9230832995409	1.22583561015304	2.83179620662337					+ powyżej	2%
	18	24.57	0.003347850561432	72	#VALUE!	#VALUE!	7	0.92	1.00	0.04	0.04	0.90	1.00			1.37586635860415	3.01494302875749	1.28642363950416	2.9255003096575					WIBOR2W+5%	6.61%
	21	25.68	0.045008267879289	69	#VALUE!	#VALUE!	8	0.97	1.00	0.04	0.04	0.97	1.00			1.90234852100842	3.57667818486723	1.81478901743133	3.48911868129014
	24	25.70	0.000593383770954	66	#VALUE!	#VALUE!	9	0.97	1.00	0.04	0.04	0.97	1.00			1.94598928705244	3.65794903508423	1.86035440319467	3.57231415122646					Cena wykonania 1	22
	27	25.71	0.000593031875463	63	#VALUE!	#VALUE!	10	0.98	1.00	0.04	0.04	0.97	1.00			1.99268620545985	3.74493287127931	1.90902020280644	3.6612668686259					Cena wykonania 2	19
	30	25.73	0.000592680397096	60	#VALUE!	#VALUE!	11	0.98	1.00	0.04	0.04	0.98	1.00			2.04281640300315	3.83833493445003	1.96116674491037	3.75668527635726					Termin opcji (w dniach)	90
	33	25.74	0.00059232933511	57	#VALUE!	#VALUE!	12	0.98	1.00	0.03	0.03	0.98	1.00			2.09682557434049	3.93898871837272	2.01724333176507	3.8594064757973
	36	25.76	0.000591978688767	54	#VALUE!	#VALUE!	13	0.98	1.00	0.03	0.03	0.98	1.00			2.15524489492271	4.04788760839365	2.07778522799856	3.9704279414695
	39	25.77	0.000591628457329	51	#VALUE!	#VALUE!	14	0.99	1.00	0.03	0.03	0.98	1.00			2.21871332972171	4.16622661496498	2.1434360644508	4.09094934969407
	42	26.00	0.008869179600887	48	#VALUE!	#VALUE!	15	0.99	1.00	0.03	0.03	0.99	1.00			2.40082431690125	4.40827506248917	2.32779464256723	4.33524538815514
	45	25.93	-0.002673992673993	45	#VALUE!	#VALUE!	16	0.99	1.00	0.03	0.03	0.99	1.00			2.4343778770708	4.50766409200244	2.36366719895215	4.43695341388379
	48	25.86	-0.002681162081757	42	#VALUE!	#VALUE!	17	0.99	1.00	0.03	0.03	0.99	1.00			2.47294660883229	4.61900172620769	2.4046336037259	4.55068872110129
	51	25.79	-0.002688370037563	39	#VALUE!	#VALUE!	18	0.99	1.00	0.02	0.02	0.99	1.00			2.51754485334386	4.74461149832406	2.45171679448342	4.67878343946362
	54	25.72	-0.002695616853144	36	#VALUE!	#VALUE!	19	0.99	1.00	0.02	0.02	0.99	1.00			2.56948500969307	4.88748946639327	2.50623945648971	4.8242439131899
	57	25.65	-0.002702902843602	33	#VALUE!	#VALUE!	20	1.00	1.00	0.02	0.02	0.99	1.00			2.63049868119427	5.05157537509765	2.56994567411232	4.9910223680157
	60	25.58	-0.002710228327455	30	#VALUE!	#VALUE!	21	1.00	1.00	0.02	0.02	1.00	1.00			2.70292355646612	5.24217021513052	2.64518852954715	5.18443518821156
	63	25.51	-0.002717593626684	27	#VALUE!	#VALUE!	22	1.00	1.00	0.02	0.02	1.00	1.00			2.79000263686766	5.46660363098488	2.73523038111714	5.41183137523436
	66	24.54	-0.038149986934936	24	#VALUE!	#VALUE!	23	0.99	1.00	0.01	0.01	0.98	1.00			2.19599419467223	5.03495826487864	2.1443544167228	4.98331848692921
	69	25.02	0.019559902200489	21	#VALUE!	#VALUE!	24	1.00	1.00	0.01	0.01	1.00	1.00			2.73792588510045	5.77290613769291	2.68962129594648	5.72460154853895
	72	25.50	0.019184652278178	18	#VALUE!	#VALUE!	25	1.00	1.00	0.01	0.01	1.00	1.00			3.37064884258598	6.64880218289267	3.32592748303598	6.60408082334267
	75	25.98	0.018823529411765	15	#VALUE!	#VALUE!	26	1.00	1.00	0.01	0.01	1.00	1.00			4.1364833238843	7.72752038677807	4.09565849483791	7.68669555773168
	78	25.98	0	12	#VALUE!	#VALUE!	27	1.00	1.00	0.01	0.01	1.00	1.00			4.61056119317899	8.62546268435482	4.57404635601198	8.5889478471878
	81	33.60	0.293302540415704	9	#VALUE!	#VALUE!	28	1.00	1.00	0.01	0.01	1.00	1.00			13.4408062569753	18.0768151703757	13.4091834803736	18.045192393774
	84	30.24	-0.1	6	#VALUE!	#VALUE!	29	1.00	1.00	0.00	0.00	1.00	1.00			12.3609270718482	18.038855212261	12.3351071828735	18.0130353232863
	87	26.88	-0.111111111111111	3	#VALUE!	#VALUE!	30	1.00	1.00	0.00	0.00	1.00	1.00			11.0014126428272	19.0312156251789	10.9831552242437	19.0129582065954
	90	24.17	-0.100818452380952	0
																INPUTS
																cena akcji	200
																r - wolna od ryzyka	7%
												odch. standardowe stopy zwrotu akcji					0.2
	Dzień	Cena akcji	stopa zwrotu z akcji	okres opcji	Cena rozl. 350	Cena rozl. 380	Dzień									p =	30%
	0	-14.4		90	#VALUE!	#VALUE!	0
	1	-13.9	-0.033265105766922	89	#VALUE!	#VALUE!	1									WIBOR2W	5.54%
	2	-13.5	-0.034409749731142	88	#VALUE!	#VALUE!	2									dadatkowo	5%
	3	-13.0	-0.035635974702065	87	#VALUE!	#VALUE!	3									WIBOR2W+5%	10.54%
	4	-12.5	-0.036952824625593	86	#VALUE!	#VALUE!	4
	5	-12.0	-0.038370731538905	85	#VALUE!	#VALUE!	5									strike price A	230
	6	-12.0	0	84	#VALUE!	#VALUE!	6									strike price B	250
weekend	7	-12.0	0	83	#VALUE!	#VALUE!	7									maturity (w dniach)	90
	8	-11.5	-0.039901792507117	82	#VALUE!	#VALUE!	8
	9	-11.1	-0.04156011561704	81	#VALUE!	#VALUE!	9
	10	-10.6	-0.043362255989374	80	#VALUE!	#VALUE!	10
	11	-10.1	-0.045327770371657	79	#VALUE!	#VALUE!	11									dywidenda	10%
	12	-9.6	-0.047479929723423	78	#VALUE!	#VALUE!	12									ustalenie prawa w t=15	16
	13	-9.6	0	77	#VALUE!	#VALUE!	13									wypłata w t=16
weekend	14	-9.6	0	76	#VALUE!	#VALUE!	14
	15	-9.1	-0.049846644921232	75	#VALUE!	#VALUE!	15
	16	-8.7	-0.052461683847971	74	#VALUE!	#VALUE!	16	wys dyw				-0.866953476123626
	17	15.4	-2.77754235529084	73	#VALUE!	#VALUE!	17
	18	15.9	0.031147664432129	72	#VALUE!	#VALUE!	18	payment				16.8
	19	16.4	0.03020679336871	71	#VALUE!	#VALUE!	19
	20	16.4	0	70	#VALUE!	#VALUE!	20
weekend	21	16.4	0	69	#VALUE!	#VALUE!	21									-14.4295347612363						214.429534761236
	22	16.9	0.029321097048812	68	#VALUE!	#VALUE!	22
	23	17.3	0.028485860372317	67	#VALUE!	#VALUE!	23
	24	17.8	0.027696890613552	66	#VALUE!	#VALUE!	24							Sd=200-wartość dyw/(1+rf)^dzień dyw/360
	25	18.3	0.026950447030171	65	#VALUE!	#VALUE!	25
	26	18.8	0.026243181555749	64	#VALUE!	#VALUE!	26
	27	18.8	0	63	#VALUE!	#VALUE!	27
weekend	28	18.8	0	62	#VALUE!	#VALUE!	28
	29	15.4	-0.179004620144476	61	#VALUE!	#VALUE!	29
	30	12.1	-0.218033651024902	60	#VALUE!	#VALUE!	30
	31	8.7	-0.278827409019164	59	#VALUE!	#VALUE!	31
	32	5.3	-0.386630624217073	58	#VALUE!	#VALUE!	32
	33	2.0	-0.630338975961366	57	#VALUE!	#VALUE!	33
	34	2.0	0	56	#VALUE!	#VALUE!	34
weekend	35	2.0	0	55	#VALUE!	#VALUE!	35
	36	-1.4	-1.7051810577019	54	#VALUE!	#VALUE!	36
	37	-4.7	2.41807552695598	53	#VALUE!	#VALUE!	37
	38	-8.1	0.707437711041287	52	#VALUE!	#VALUE!	38
	39	-11.5	0.414327097537194	51	#VALUE!	#VALUE!	39
	40	-14.8	0.292949981838482	50	#VALUE!	#VALUE!	40
	41	-14.8	0	49	#VALUE!	#VALUE!	41
weekend	42	17.5		48	#VALUE!	#VALUE!	42

---

Sheet 6: Arkusz3

Dzień	DELTA (22)	DELTA (19)	RHO (22)	RHO (19)	DELTA (26)	DELTA (28)	RHO (26)	RHO (28)
0	0.84739240419551	0.993637026137696	0.044769465746618	0.053967632421125	0.259389954825192	0.08282667554036	0.014669230215376	0.004412274550119
1	0.856249845891485	0.994423495995968	0.044811324461033	0.05342900459626	0.268855369130477	0.086676383321633	0.015081371771353	0.004581010762743
3	0.865818683636461	0.995310699159063	0.044386973983043	0.052301577768251	0.276838912482627	0.089150265177792	0.01523316245637	0.004622757246316
6	0.876188502460766	0.996248224108268	0.043477509081395	0.050578490755283	0.283311612235447	0.090102908223882	0.01511119342294	0.004529407676654
9	0.886378579733714	0.997045800863882	0.042515267140388	0.04884080439968	0.289990407740987	0.09100710686987	0.014974043251879	0.004429477346072
12	0.896359940618673	0.99771477038715	0.041499531697273	0.047090158778051	0.296889195419533	0.091855454684848	0.014821058219935	0.00432280695306
15	0.906101187163912	0.998267013354691	0.040429701075002	0.045328131741973	0.304023528102681	0.092639502940057	0.0146515480521	0.004209241121843
18	0.915568437469288	0.998714793128243	0.03930531216143	0.043556222365836	0.311410893421046	0.093349579854839	0.014464782041689	0.004088629995486
21	0.971437264001763	0.999825967162195	0.040373249178441	0.041817809096637	0.497788432419229	0.197130235662729	0.022883080974136	0.00858865469102
24	0.974172056358507	0.99987284604729	0.038765932460452	0.040016289760907	0.498092197711225	0.192101848526264	0.021946314288053	0.008021367133517
27	0.976852160621009	0.999909751380534	0.037142480712983	0.038212730333179	0.498407414105265	0.186799577938883	0.021005618965327	0.007460225672753
30	0.979464760030191	0.999938041986222	0.035502709514505	0.036407275235328	0.498735374858823	0.181199424342508	0.020060913172666	0.00690588762754
33	0.981995554090357	0.999959069743334	0.033846486947205	0.034600054662026	0.499077595486699	0.1752745859023	0.019112108525745	0.006359095775589
36	0.984428718196837	0.999974146043628	0.032173748293415	0.032791183154605	0.499435866737941	0.168995097139422	0.018159109166809	0.005820693583497
39	0.986746928435056	0.999984506617353	0.030484513644094	0.030980758617274	0.499812324091077	0.162327439780384	0.017201810650665	0.005291643910169
42	0.99182091288739	0.999994785853583	0.028878645998943	0.029169002108373	0.54512036064941	0.183681656532406	0.017790606995008	0.005685096751016
45	0.992541293118664	0.999996719691316	0.027108228398588	0.02735560485865	0.52864991605054	0.164490447482813	0.016179783932684	0.004771111290788
48	0.993299783090138	0.999998070005312	0.025334232011144	0.025540900890821	0.510979632965737	0.145186364494862	0.014601359107369	0.003928965642533
51	0.9940911857885	0.99999895419412	0.023556275871872	0.023724898109026	0.491946314357753	0.125903880749618	0.013058296404073	0.003162607601566
54	0.994907481852365	0.999999488628114	0.021773956547878	0.021907603092613	0.471351820882734	0.106819438668136	0.011554023616171	0.002475911536865
57	0.995736976055293	0.999999780545285	0.019986859148819	0.020089020906266	0.448952290992633	0.088161870842971	0.010092558890179	0.001872495243915
60	0.996563322778821	0.999999920493326	0.018194576634381	0.018269155049738	0.424443773633018	0.070223896721407	0.008678681534016	0.001355437467384
63	0.997364559974035	0.999999977007934	0.016396741533505	0.016448007572176	0.397442081172829	0.05337290158076	0.007318175380244	0.000926850678676
66	0.985953869850872	0.999999760632501	0.014391538101102	0.01462557485859	0.149403727080306	0.006678830747242	0.002380407699567	9.97841369316381E-05
69	0.99690854561906	0.999999996092338	0.012756081893725	0.012801870342514	0.235632460506786	0.012079091045123	0.003344034587593	0.000161007855743
72	0.999624989452367	0.999999999985146	0.010972043028262	0.010976880330201	0.357632631130193	0.021593340681633	0.004424730593459	0.000251474287318
75	0.999982356465231	0.999999999999994	0.009150415815715	0.009150608526195	0.517751385493402	0.038300551625761	0.005423079598085	0.000378777114264
78	0.999997989977257	1	0.007323036787674	0.00732305432181	0.514198076163107	0.023079578395501	0.004324089235981	0.0001830899192
81	1	1	0.005494217042369	0.005494217042369	1	0.999999996951363	0.006493165595527	0.006493165571626
84	1	1	0.003664096012659	0.003664096012659	0.999999998073721	0.998739228365999	0.00433029527794	0.004324351700443
87	1	1	0.001832690557151	0.001832690557151	0.96795005530388	0.013636832357088	0.002093599489114	2.81840519854876E-05

---

Sheet 7: Arkusz2

Dzień	Cena akcji	stopa zwrotu z akcji	okres opcji	Cena rozl. 22	Cena rozl. 19	Cena rozl. 26	Cena rozl. 28
0	24		90	2.42963140204525	5.20392470000706	0.357666829654257	0.087168099071157
1	24.0819954648526	0.003416477702192	89	2.49427591006538	5.2830243148742	0.374243625396851	0.091809220431122
3	24.1639909297052	0.003404845124744	87	2.55461110103975	5.35983273311115	0.386155402066628	0.094217664969779
6	24.2459863945578	0.003393291492748	84	2.61083633199122	5.43441067271365	0.392943742992393	0.094138036142733
9	24.3279818594104	0.003381816005267	81	2.66812772371495	5.50913673027796	0.399751044757529	0.093927523810642
12	24.409977324263	0.003370417872163	78	2.72649581075347	5.58399177193965	0.40657011880893	0.093575459120725
15	24.4919727891156	0.003359096313912	75	2.7859491042028	5.65895755068252	0.413392912533937	0.093070312991019
18	24.5739682539682	0.003347850561432	72	2.84649363599068	5.73401687221818	0.420210388024432	0.092399614304492
21	25.68	0.045008267879289	69	3.8822050203786	6.83272357579002	0.844208175411458	0.2365720501758
24	25.6952380952381	0.000593383770954	66	3.88652886452213	6.84132194851469	0.827880729177897	0.224250713931931
27	25.7104761904762	0.000593031875463	63	3.89105952412878	6.84992530145767	0.811081116180295	0.211797994679253
30	25.7257142857143	0.000592680397096	60	3.89580486075938	6.85853229506606	0.793775854197342	0.199218767730308
33	25.7409523809524	0.00059232933511	57	3.90077219791216	6.86714170878674	0.775927235142307	0.186519828820797
36	25.7561904761905	0.000591978688767	54	3.90596804716652	6.87575245744739	0.757492536471027	0.173710415621238
39	25.7714285714286	0.000591628457329	51	3.91139776488035	6.88436360370552	0.738423032493069	0.160802884150666
42	26	0.008869179600887	48	4.12835923586485	7.10630624836097	0.830174130628697	0.183914155560333
45	25.9304761904762	-0.002673992673993	45	4.05048565040734	7.03015504635217	0.764316915098997	0.154819750719504
48	25.8609523809524	-0.002681162081757	42	3.9726223809521	6.95400181001293	0.698969292304611	0.127920142380471
51	25.7914285714286	-0.002688370037563	39	3.89477716079209	6.87784646273433	0.634186162437761	0.10334700010094
54	25.7219047619048	-0.002695616853144	36	3.81695894723544	6.80168893755307	0.570043029925644	0.081233157671634
57	25.652380952381	-0.002702902843602	33	3.7391778939764	6.72552917975163	0.506630954155348	0.06170734404632
60	25.5828571428572	-0.002710228327455	30	3.66144515920489	6.6493671482122	0.444066585210097	0.044885652296233
63	25.5133333333333	-0.002717593626684	27	3.58377242879726	6.57320281513234	0.382505123997538	0.030858116026372
66	24.54	-0.038149986934936	24	2.60800081448794	5.59322669547534	0.095755913200047	0.002708746878529
69	25.02	0.019559902200489	21	3.07508285071833	6.06658147305426	0.162893440292407	0.004973585807797
72	25.5	0.019184652278178	18	3.54635117451233	6.5399339747293	0.2701709069029	0.008993260851229
75	25.98	0.018823529411765	15	4.01854366325095	7.01328414570548	0.435789959714672	0.016055174371189
78	25.98	0	12	4.01083741658614	7.0066319844018	0.386598310774833	0.008086169298428
81	33.6	0.293302540415704	9	11.6231318305238	14.6199774899978	7.62733761789176	5.62944051209919
84	30.24	-0.1	6	8.25542392404509	11.2533206616753	4.25822827411128	2.25990943215806
87	26.88	-0.111111111111111	3	4.88771331418653	7.88666149861564	0.895303617200103	0.002333381946064
90	24.17	-0.100818452380952	0

---

Sheet 8: 59

Black-Scholes Model. Put-Call Parity
Problem 59
Consider a call option on the stock of Arkla Natural Gas. The stock currently
trades for $22,75 per share. The option has one month to expiration and an
exercise price of $20,00. The riskless interest rate is 5% (annually) and the variance
is 0,45.
(a) What is the value of the call option?
(b) The price exceeds $2,75. Why?
(c) Suppose the risk-free rate was 7% instead of 5%. Find the option's value
Is this result consistent with your expectation ?
							#VALUE!
							-90	110
					10.00 zł
				2.9999999985
							42
							84
									26.6666666666667

---

Sheet 9: 60

Swap terminology
Problem 60
Gettman Inc., a manufacturer of sports footwear, recently negotiated
a ten-year, $5 million bank loan with Texas Commerce Bank (TCB). The loan
requires semiannual payments based on a floating-rate index of six-month
LIBOR + 1%. Furthermore, the loan contains a covenant stipulating that
Gettman should hedge within the next 60 days, to the degree possible,
the interest rate risk in the loan. The CFO of Gettman decides to achive this
objective by entering into an interest swap, where the firm will receive floating
and pay fixed. The swap dealer quotes ten year swaps at "80-87". The current
ten-year Treasury bond yield is 7%.
(a) What is the percentage coupon (as a function of LIBOR, on a 365-day
basis) received by TCB on this loan?
(b) What is the fixed rate paid by Gettman Inc. to the dealer?
(c) What is the floating rate paid by the dealer to the firm?
(d) What is the net interest cost for Gettman on its borrowed funds?
(e) Can you offer a plausible reason why TCB may want the firm to hedge the
interest rate risk when presumably the bank itself could have provided a
fixed-rate loan to the firm?

---

Sheet 10: 61

Swap. Economic value

Problem 61

Consider a five-year, semiannual settlement, $100 million notional principal

8%-versus-LIBOR interest rate swap between Firm X (the fixed payer) and

Firm Y (the fixed receiver). Also suppose that just after the sixth payment (i.e.,

after three years), Firm X falls into financial troubles and files for Chapter 7.

(a) What is the loss per period to Firm Y if the market today offers swaps for a

fixed rate 7,2% against LIBOR flat?

(b) What is the economic value of the swap?

(c) If instead the market today offers swaps for a fixed rate of 8,4% against the

LIBOR, what is the loss to Firm Y? What is the economic value of the swap

in this case?

722,570.16 zł

-200000

#VALUE!

ex 72

8000000

7200000

4400000

because we are calculating it per period