P4例题及答案完整版.docVIP

PAGE PAGE 5 Macawber Assume that it is now mid December. The finance director of Macawber Inc (incorporated), has recently reviewed the company’s monthly cash budgets for the next year. As a result of buying new machinery in three months time, his company is expected to require short-term financing of $20 million for a period of six months until the proceeds from a factory disposal became available. The finance director is concerned that, as a result of increasing wage settlements, the Central Bank will increase interest rates in the near future. LIBOR is currently 6% per annum and Macawber can borrow at LIBOR+0.9%. Derivative contracts may be assumed to mature at the end of the relevant month. Three types of hedge are available: FRA prices 3 – 6 6.11 – 6.01 3 – 9 6.38 – 6.30 Three month futures ($500,000 contract size, $12.50 tick size) December 93.870 March 93.790 June 93.680 Options on three month sterling futures ($500,000 contract size, premium cost in annual %) Calls Puts December March June December March June 93750 0.120 0.195 0.270 0.020 0.085 0.180 94000 0.015 0.075 0.155 0.165 0.255 0.335 94250 0 0.085 0.085 0.400 0.480 0.555 Required Prepare a report for the finance director, which: Briefly discusses the relative advantages and disadvantages of the three types of hedge Illustrates how the short-term interest rate risk might be hedged, and the possible results of the alternative hedges, if interest rates increase by 0.5% All relevant calculations must be shown. (15 marks) The following five-year loan interest rates are available to Stentor Ltd, an AA credit rated company in the Macawber group, and to Evnor Ltd, a BB+ rated company. Stentor wants to borrow at a floating rate of interest, and Evnor wants to borrow at a fixed rate of interest. Fixed rate Floating rate Stentor 8.75% LIBOR+0.50% Evnor 9.50% LIBOR+0.90% A bank is willing to act as an intermediary to facilitate a five year swap, for an annual fee of 0.05% of th