(10 marks)Suppose you bought two one-year gold futures contracts when the one-year futures price of gold was $1650 per ounce, and closed the position at the end of the sixth trading day

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1. (10 marks)Suppose you bought two one-year gold futures contracts when the one-year futures price of gold was $1650 per ounce, and closed the position at the end of the sixth trading day. The initial margin requirement is $8,000 per contract, and the maintenance margin requirement is $7,000 per contract. One contract is for 100 ounces of gold. The daily prices on the intervening trading days are shown in the following table.

 

 

 

Day Settlement Price Mark-to-Market ($) Other

Entries

 Account Balance ($) Explanation
0 1650.00 — —
1 1660.00
2 1640.00
3 1630.00
4 1660.00
5 1650.00
6 1640.00
Closed — — — —

 

Assume that you deposit the initial margin and do not withdraw the excess on any given day. Whenever a margin call occurs, you would make a deposit to bring the balance up to meet the initial margin requirement. Fill the appropriate numbers in the blank cells. (Hint: Refer to Table 8.2 on p. 272 of the textbook.)

 

 

 

 

2. (12 marks) A soybean oil futures contract of CBOT covers 60,000 pounds of soybean oil.The initial margin is $2,025 and the maintenance margin is $1,500. Suppose you are going to short five August soybean futures contracts for the price of $0.32 per pound.

 

 

 

a.    How much margin deposit do you need to put up? (2 marks)

 

 

 

b.    At what price would there be a margin call? (5 marks)

 

 

 

c.     If the futures price rises by 5% next day, what would be your loss and margin variation? (3 marks)

 

 

 

d.    How can you close your position in May? (2 marks)

 

 

 

3. (8 marks) Suppose you have a short position in a forward contract for 500 troy ounces of gold at $920. The contract has 10 months to expire. Currently, the spot price of gold is $922, and the risk-free rate and the rate of storage cost are 8% and 3% per annum, respectively. Both rates are continuously compounded. What is the value of the contract to you?

 

4. (10 marks) Consider the 90-day futures on stock ABC. Currently, the share price of ABC is $80 per share. The stock is expected to pay a dividend of $1.50 in one month’s time. Assume that the simple interest rate is 8% per year, and that there are 30 days in a month. Determine the price of the futures and the dollar cost of carry, assuming no arbitrage opportunities are present.

 

 

 

5. (8 marks) You buy 500 shares of stock ABC at $60 per share and short five September futures contracts at $62 per share. One contract is for 100 shares. If you close your position on June 1 when the basis is $5, how much money can you get?

 

 

 

6. (10 marks) Currently, the spot price of silver is $9 per ounce and the one-year futures price of silver is $11. The storage costs are $0.24 per ounce per year payable at the end of the year. Assume the simple interest rate is 10% per annum.

 

 

 

  1. What is the “fair” one-year futures price of silver? What is the cost of carry? (4 marks)

 

 

 

  1. How can you make an arbitrage profit? Show your transactions in details using a numerical example. (6 marks)

 

 

 

7. (12 marks)  Today is February 15. Suppose you are an oil dealer and hold a position of 200,000 barrels of crude oil. You hedge by trading May crude oil futures, each of which is on 10,000 barrels. The hedge will be on until April 15. The current spot price and the May futures price are $20.50 and $20.00 per barrel, respectively. For simplicity, a hedge ratio of 1 is used.

 

 

 

  1. How many contracts will you use? Long or short? (3 marks)

 

 

 

  1. What is the basis today? (3 marks)

 

 

 

  1. If the basis on April 15 is 20% higher than today’s basis, what is your gain or loss? (3 marks)

 

 

 

  1. If the basis on April 15 is 0.05 lower than today’s basis, what is your gain or loss? (3 marks)

 

 

 

8.  (12 marks) Chococo Inc., a producer of powdered hot chocolate, has just received a large order that will require the purchase of 750 metric tons of cocoa in 3 months.  The current spot price of cocoa is $2,645 per metric ton. The standard deviation of the value for the inventory is 0.15. Mr. Dulce, the CFO of the Chococo, is considering a minimum-variance hedge of this future cocoa purchase using the three-month cocoa futures contract. The contract size is 10 metric tons. The volatility of the futures is 0.2. The covariance between the change in the spot and futures cocoa price is 0.027.

 

 

 

a.    Compute the minimum-variance hedge ratio. (5 marks)

 

 

 

b.    How many contracts she should trade? Long or short? (3 marks)

 

 

 

c.     What is the estimated effectiveness of this minimum variance hedge?

(2 marks)

 

 

 

d.    What is the correlation of the change in the spot and futures cocoa price?

(2 marks)

 

 

 

9.   (15 marks) You manage a portfolio that is currently all invested in equities in companies in five major Canadian industries. The market value involved and beta for each industry are shown in the table below.

 

 

 

Industry MV Beta
Oil and Gas $1,000,000 1.2
Technology 600,000 1.5
Utilities 1,500,000 0.8
Financial 800,000 1.3
Pharmaceutical 1,300,000 1.1

 

 

 

You believe that the Canadian equity market is on the verge of a big but short-lived downturn. You would move your portfolio temporarily into T-bills, but you do not want to incur the transaction costs of liquidating and reestablishing your equity position. Instead, you decide to hedge your portfolio with three-month S&P/TSX 60 index futures contracts for one month. Currently, the level of the S&P/TSX 60 index is 678.68, the three-month futures price of the S&P/TSX 60 is 665.60, and one contract is for $200 times the index. The annual simple risk-free rate of return is 1%.

 

 

 

  1. How many futures contracts should you use? Long or short? (5 marks)

 

 

 

  1. Suppose the return on the S&P/TSX 60 index is -5% in one month, and the S&P/TSX index futures price falls to 620 in one month. Calculate your net gain or loss on your hedged portfolio in part (a). (10 marks)

 

 

 

 

 

 

 

10. (3 marks)

 

  1. Define contango and normal contango, and describe the difference(s) between the two. (1 mark)

 

 

 

  1. Define backwardation and normal backwardation, and describe the difference(s) between the two. (1 mark)

 

 

 

  1. Is it possible for normal contango and backwardation to occur at the same time? (1 mark)

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.Which of the following does NOT usually function as an entry barrier? Economies of scale High strategic stakes

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1.Which of the following does NOT usually function as an entry barrier?

Economies of scale
High strategic stakes
Product differentiation
Switching costs

2.A challenge in conducting an external analysis is that:

brand loyalty is low.
markets may be concentrated.
markets may be fragmented.
forecasts aren’t facts

3. A long-term contract is usually an agreement between:

two organizations in the same industry.
an organization and its suppliers.
two organizations in unrelated industries.
a domestic and international organization.

4.The product-market evolution matrix is based on the:

industry analysis.
product life cycle.
internal strengths and weaknesses.
opportunities and threats.

5.An organization’s __________ are its goal-directed plans and actions in which its capabilities and resources are matched with the opportunities and threats in its environment.

mission statements
vision statements
strategies
objectives

6.Characteristics of dynamic capabilities include all of the following EXCEPT:

timely responsiveness.
reactive responsiveness.
rapid and flexible product innovation.
coordinating and deploying organizational resources and capabilities.

7.__________ is an arrangement in which a foreign firm buys the rights to manufacture and market a company’s product in that country for a negotiated fee.

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Discuss the issues faced and the goals the business       expected accomplished.

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  1. Student Internship      Evaluation.      The student will prepare a 10-15 page, double-spaced, word-processed report      describing practical work experience gained during the internship. The      report should be of professional quality and should include as a minimum:
    • What       was the organization attempting to accomplish?
      Provide a brief summary of the business, their products, state of their       information systems. Discuss the issues faced and the goals the business       expected accomplished.
    • What       steps or processes did you follow to accomplish the business’ goals for       you?
      Explain how you addressed the issues, what steps you followed, and how       you developed the deliverable.
    • What       were the results of your efforts?
      Explain how you applied the concepts learned in the classroom to your       project and what you accomplished. Define your measures of effectiveness       and how the results of your project met these measures.

The paper will be downgraded if the above points are not covered. The paper will also be graded on punctuation, grammar, and style. A review of a style guide such as The Elements of Style by Strunk & White will be well worthwhile.

Allocating specific, limited resources to specific activities is called: A. resource allocation.

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Allocating specific, limited resources to specific activities is called:
A. resource allocation.

B. resource leveling.

C. resource tracking.

D. expediting a project.

Question 2 of 20 5.0 Points

The primary cause of concern in resource allocation is:
A. labor cost.

B. resource scarcity.

C. lack of solution methodologies.

D. parallel activities.

Question 3 of 20 5.0 Points

A project that cannot go over budget is considered:
A. time constrained.

B. schedule constrained.

C. resource constrained.

D. performance constrained.

Question 4 of 20 5.0 Points

The task duration with standard-practice resource usage is referred to as the:
A. expected task duration.

B. nominal task duration.

C. crash duration.

D. normal task duration.

Question 5 of 20 5.0 Points

A task has a normal duration of 9 days and crash duration of 7 days. Its normal cost is $40 and its crash cost is $100. What is the crash cost per day?
A. $140

B. $70

C. $50

D. $30

Question 6 of 20 5.0 Points

What is an expediting technique in which the design and planning phases of a project are not actually completed before the building phase is started?
A. resource loading

B. fast-tacking

C. crashing

D. critical path

Question 7 of 20 5.0 Points

Resource __________ refers to the amounts of specific resources that are scheduled for use on specific activities or projects at specific times.
A. expediting

B. leveling

C. loading

D. allocation

Question 8 of 20 5.0 Points

Which of the following priority rules makes resources available so that activities start on their LSTs whenever possible without increasing the project’s duration?
A. As soon as possible

B. As late as possible

C. Shortest task duration first

D. Minimum slack first

Question 9 of 20 5.0 Points

Which of the following rules maximizes the number of tasks that can be completed by a system in a given period of time?
A. As soon as possible

B. As late as possible

C. Shortest task duration first

D. Minimum slack first

Question 10 of 20 5.0 Points

Several projects can be linked together with:
A. virtual activities.

B. nominal activities.

C. pseudoactivities.

D. ER links.
Reset Selection

Mark for Review What’s This?
Question 11 of 20 5.0 Points

Which of the following is NOT commonly used to help select a priority rule?
A. Schedule slippage

B. Resource utilization

C. In-process inventory

D. Cost overruns
Reset Selection

Mark for Review What’s This?
Question 12 of 20 5.0 Points

Which of the following is a measure of the amount by which a project is delayed by application of a leveling rule?
A. Schedule inflation

B. Schedule progression

C. Schedule efficacy

D. Schedule slippage
Reset Selection

Mark for Review What’s This?
Question 13 of 20 5.0 Points

According to research, the best overall priority rule is:
A. as soon as possible.

B. as late as possible.

C. shortest task duration first.

D. minimum slack first.
Reset Selection

Mark for Review What’s This?
Question 14 of 20 5.0 Points

The practice of assigning project team members to multiple projects is called:
A. concurrent engineering.

B. parallel activities.

C. fast-tracking.

D. multitasking.
Reset Selection

Mark for Review What’s This?
Question 15 of 20 5.0 Points

The safety time added to chains other than the critical chain is called the:
A. feeding buffer.

B. project buffer.

C. path buffer.

D. critical buffer.
Reset Selection

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