# P2

Document Sample

```					Section 14.7 Financial Futures

Inputs
Spot Exchange Rate (BP1 = \$S)                             BP means British Pounds
Riskfree Rate in US (r\$)
Riskfree Rate in Britain (rBP)
(c) Observed Futures Price (F)
(c) Date 1 Spot Exch (BP1 = \$S1)              <== Arbitrary input. Value doesn't effect final result.

Outputs
(b) Model Futures Price
(c) Date 0 Price Difference

Date and Currency                  Date 0 \$    Date 1 \$    Date 0 BP Date 1 BP
Borrow \$1.50 at r\$
Convert to BP
Invest at rBP
Convert to \$
Short BP1.12 at BP1 = \$F = \$1.55
(c) Arbitrage Profits
DCF Calculations in Excel                 Section 14.7 Financial Futures

Bonds:                        Pay pv      Treasury Bond Futures
Get pmt, fv
Inputs                       Prob. 2a     Inputs                        Prob. 2b
Interest rate (rate)                      Spot Price (S)
Number of periods (nper)                  Riskfree Rate (r)
Payment (pmt)                             Coupon Payment (C)
Present value (pv)                        (c) Observed Futures Price
Future value (fv)                         (c) Date 1 Spot Price (S1)

Bonds by Formula                          Outputs
Interest rate                             Spot Price (S)
Number of periods                         Riskfree Rate (r)
Payment                                   Coupon Payment (C)
Present value                             (b) Model Futures Price (F)
Future value
Bonds by Function                         Date                                     0
Interest rate (RATE)                      Sell short a 30-year T-bond
Number of periods (NPER)                  Buy 6-month T-bills at 3.5%
Payment (PMT)                             Buy Treasury bond forward
Present value (PV)                        (c) Arbitrage Profits
Future value (FV)
<== \$1 below Model Futures Price
<== Arbitrary input. Value doesn't effect final result.

1
Section 14.7 Financial Futures

Inputs                  Prob. 3a   Prob. 3b
Stock Price (S)
Riskfree Rate (r)
Expected Dividend (D)
Futures Price (F)

Outputs
Stock Price (S)
Riskfree Rate (r)
Expected Dividend (D)
Futures Price (F)
Section 14.7 Financial Futures

Inputs              Prob. 6
Spot Price (S)
Riskfree Rate (r)
Carrying Cost (s)
Futures Price (F)

Outputs
Spot Price (S)
Riskfree Rate (r)
Carrying Cost (s)
Futures Price (F)
Section 14.7 Financial Futures

Inputs
Spot Price (S)
Riskfree Rate (r)
Carrying Cost (s)
Futures Price (F)
(b) Observed Riskfree Rate (r)
(b) Date 1 Spot Price (S1)           <== Arbitrary input. Value doesn't effect final result.

Outputs
Spot Price (S)
Model Riskfree Rate (r)
Carrying Cost (s)
Futures Price (F)

Date                             0                1
Borrow \$180 at r
Kryptonite storage costs
(b) Arbitrage Profits
Section 14.7 Financial Futures

Inputs              Prob. 8
Spot Price (S)
Riskfree Rate (r)             for 273 days
Carrying Cost (s)
Futures Price (F)

Outputs
Spot Price (S)
Riskfree Rate (r)
Carrying Cost (s)             for 273 days
Futures Price (F)
Section 14.7 Financial Futures

Inputs              Prob. 9
Spot Price (S)
Riskfree Rate (r)
Time Periods (T)
Futures Price (F)

Outputs
Spot Price (S)
Riskfree Rate (r)
Time Periods (T)
Futures Price (F)
Section 14.7 Financial Futures

Inputs
Spot Price (S)
Riskfree Rate (r)
(b) Observed Futures Price (F)
(b) Date 1 Spot Price (S1)           <== Arbitrary input. Value doesn't effect final result.

Outputs
Spot Price (S)
Model Riskfree Rate (r)
Futures Price (F)

Date                             0             1
Borrow \$43.05 at r