Derivatives and Alternative Investments – Accounting and Finance Assignment Help

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Assignment Task :

Introduction 

The module is designed to give you a clear understanding of the financial markets, financial  instruments and their calculations. Candidates are required to research and critically evaluate  theories, concepts and tools relating to the module and apply them within a contemporary  global context.  

There are 2 sections in this assignment. Section A contains 

Your Task  

one compulsory question and two optional questions. You  are required to answer the compulsory question and one optional question from section A. Section B contains 2  optional questions. You must select and answer any one. 

Section A 

Question 1  

Solve the following exercises with the use of the corresponding  formulas. 

1) Consider a bond with Face Value of 2000€, with maturity time  1.5 years and coupon rate 2.2% with quarterly coupon  payments and 3% discount rate. Determine the duration of the  bond. Calculate the 9-month forward price of it at 2% risk-free  rate. 

2) Calculate the 6-month forward price of 5000 stocks of a  company A, if the spot price is 25€, it gives a 0.1% monthly  dividend, and we have a monthly 0.3% of interest rate. 

3) What is the 4th year forward rate of an investment, if we know  that the 3-year spot rate is 6,100% and the 4-year spot rate is  8,200%. What would be the 5-year spot rate, if it goes on and  the return of the 5th year equals the return of the 4th year. 

4) If we know that a put option with strike price $16.5 of a stock  with the sport price $18.4 for 6 months (suppose we have a  quarterly 0.4% risk-free rate) costs 2.3$, what is the price for  a call option with the same properties? 

5) We have bought a call option for 1.5€ with a strike price of  16.8€ with maturity time being three months. The risk-free  monthly interest rate 0.3%. 

a. Calculate the payoff after 3 months and the breakeven  price. 

b. Calculate the price of a put option with the same  parameters, if the actual spot price is 18€.

 

Question 2 

Financial futures markets are an increasingly important feature of the  world‘s major financial centres. Critically assess the potential benefits  and risks of using (2 kinds of) derivatives as a means of hedging!  

Question 3  

Today’s financial manager must be able to use all of the tools  available to control a company‘s exposure to financial risk. Examine  using theory the range of tools available for assessing, managing and  minimising risk in derivative trading. 

 

Section B  

Question 1 

In 2007 a crisis began in the subprime mortgage market in the US  which then developed into a full-scale international crisis of  confidence across the financial sectors. This is also known as the  global financial crisis and the 2008 financial crisis, which was a  severe worldwide economic disaster considered by many economists  to have been the most serious financial crisis since the Great  Depression of the 1930s, to which it is often compared. 

The banking sector reached its bottom with the collapse of the  investment bank Lehman Brothers on September 15, 2008. Excessive exposure to risky credit derivatives, ‘exotics’ and ‘toxic  assets’ and risk-taking by banks such as Lehman Brothers helped to  magnify the financial impact globally. Massive bailouts of financial  institutions and other palliative monetary and fiscal policies were  employed to prevent a possible collapse of the world financial  system. The crisis was nonetheless followed by a global economic  downturn, the Great Recession. 

Critically analyse using theory, research evidence and examples: 

a) To what extent did aggressive derivatives trading contribute to  the collapse of banks such as Lehman Brothers? 

b) What risk management models and tools could have helped  mitigate the risk?

 

 

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