Business, 03.08.2021 02:10 meghan0123

The treasurer for Pittsburgh Iron Works wishes to use financial futures to hedge her interest rate exposure. She will sell five Treasury futures contracts at $123,000 per contract. It is July and the contracts must be closed out in December of this year. Long-term interest rates are currently 12.30 percent. If they increase to 13.50 percent, assume the value of the contracts will go down by 15 percent. Also, if interest rates do increase by 1.2 percent, assume the firm will have additional interest expense on its business loans and other commitments of $102,500. This expense, of course, will be separate from the futures contracts. Required:
a. What will be the profit or loss on the futures contract if interest rates increase to 10.50 percent by December when the contract is closed out?
b. After considering the hedging, what is the net cost to the firm of the increased interest expense of $139,000?
c. What percent of this $139,000 cost did the treasurer effectively hedge away?

Answers: 3

Show answers

Another question on Business

Business, 21.06.2019 22:30

Your project team’s recommendations to increase productivity have been approved and your team is now working on an implementation plan. in order to accomplish the plan, several subject matter experts from various parts of the organization have been brought in to assist. you have noticed friction and conflict among team members. some of the disagreement and opposition on your team supports the achievement of team goals and objectives. this type of conflict can be described as:

Answers: 1

Answer

Business, 22.06.2019 02:00

Precision dyes is analyzing two machines to determine which one it should purchase. the company requires a rate of return of 15 percent and uses straight-line depreciation to a zero book value over the life of its equipment. ignore bonus depreciation. machine a has a cost of $462,000, annual aftertax cash outflows of $46,200, and a four-year life. machine b costs $898,000, has annual aftertax cash outflows of $16,500, and has a seven-year life. whichever machine is purchased will be replaced at the end of its useful life. which machine should the company purchase and how much less is that machine's eac as compared to the other machine's

Answers: 3

Answer

Business, 22.06.2019 15:30

Calculate the required rate of return for climax inc., assuming that (1) investors expect a 4.0% rate of inflation in the future, (2) the real risk-free rate is 3.0%, (3) the market risk premium is 5.0%, (4) the firm has a beta of 2.30, and (5) its realized rate of return has averaged 15.0% over the last 5 years. do not round your intermediate calculations.

Answers: 3

Answer

Business, 22.06.2019 19:30

Nextdoor is an instant messaging application for smartphones. new smartphone users find it easier to connect with friends and relatives through this mobile app when compared to other similar instant messaging applications. hence, it has the largest user base in the industry. thus, nextdoor app's value has increased primarily due to itsa. learning curve effects. b. economies of scale. c. economies of scope. d. network effects.

Answers: 2

Answer

You know the right answer?

The treasurer for Pittsburgh Iron Works wishes to use financial futures to hedge her interest rate e...

Questions