Interest Rate Swaps, Options, and Market Analysis
Interest Rate Swap Valuation
A company acts as a fixed payer in a generic interest rate swap contract, with semiannual payments, which has exactly nine months to expiration. Knowing that:
- The main theorist of the contract is 100 million euros.
- The fixed rate agreed at the time was 6%.
- The EURIBOR rates at 3, 6 and 9 months are, respectively, of 2.10%, 2.17% and 2.3%.
- The 6-month interbank rate, effective three years ago, was 2.20%.
Determine the value of the swap for the company in question (use, both for payments at type fixed as a variable, an ACT / ACT basis for the computation of days):
a) -3.67 million euros.
Option Contracts on IRS or Swaptions
c) They must collect in any case the fixed interest rate that will be paid or received if finally it is decided to exercise the option.
The Sale of an Option Call
c) Forces us to sell the underlying asset at the strike price on or after the date period of validity thereof.
American Options
The AMERICAN OPTIONS are those that:
a) They can be exercised at any time between the day of purchase and the date of expiration, both inclusive.
Put Options
Determine the incorrect claim about the purchase of PUT OPTIONS:
b) We are facing a bullish strategy.
Out of the Money Options
The OUT OF THE MONEY options:
d) All the previous answers are correct.
- a) Are those whose exercise would imply a loss for the buyer.
- b) They have null intrinsic value.
- c) They only have temporary value
Call Option Theoretical Value
The theoretical value of a CALL OPTION will be greater:
c) The higher the interest rate.
Put-Call Parity
Attending the PUT-CALL PARITY, the purchase of a CALL:
a) It is equivalent to buying a put and its corresponding underlying asset and getting into debt in such a quantity that, at the time, the sum of principal and interest is equal to exercise price.
Delta Coefficient
Indicate which of the statements about the delta coefficient is incorrect:
d) Mathematically, it is the second partial derivative of the premium with respect to the price of the underlying.
Implied Volatility
The implied volatility of an option:
c) It helps us determine if an option is overvalued or undervalued comparing it with our expectations in volatility.
Portfolio Hedging with Options
To cover a portfolio of stocks with options, I can:
b) Buy put options.
Cone or Straddle Strategy
Point out the incorrect statement about buying a CONE or STRADDLE:
d) We are facing a typically neutral strategy that focuses on immobility, more or less relative, of the price of the underlying.
Stock Trading on the Madrid Stock Exchange
When buying stock on the Madrid Stock Exchange, you should know:
b) That it necessarily needs the mediation of a member of the market.
Requirements for Trading on the Stock Exchange
Among the general requirements so that the shares of a company can be admitted to Trading on the Stock Exchange are:
d) None of the above answers is correct.
- a) The corporate form of the company must be anonymous or limited liability, with a minimum age of two years.
- b) Minimum share capital of 1 million euros.
- c) Number of shareholders with interests lower than 25% over 1,000.
Spanish Continuous Market
Point out the incorrect statement about the Spanish continuous market:
c) The securities are quoted in integers at the beginning of 1999.
Daily Price Oscillation Limit
The maximum limit of daily price oscillation, in the Spanish continuous market is, as general rule, of:
c) Different for each value.
The Fixing
Point out the incorrect statement about the “FIXING”:
d) There is only a dynamic range of price variation.
Latibex Market
Regarding the Latibex market, we can affirm that:
d) All the previous answers are correct.
- a) Contracting in euros eliminates part of the exchange risk.
- b) The negotiation is carried out through the SIBE.
- c) A single range is established in terms of price variation, both static and dynamic, of 8%.
Takeover Bid (OPA)
The takeover bid (OPA):
d) None of the previous answers is correct.
- a) It occurs when an investor or group of investors intends to participate superior to 5% in the company whose control it wants to obtain.
- b) It is processed before the governing body of the Exchange, which will accept or not the operation.
- c) It is always hostile.
Public Offer of Sale (OPV)
The public offer of sale (OPV) of shares:
d) All the previous answers are correct.
- a) It is usually the general procedure to be quoted.
- b) It may be, if already quoted, a way to sell.
- c) The offer of shares can be divided into sections according to the different types of Investors.
IBEX-35 Index
The IBEX-35:
a) It is an index weighted by stock market capitalization and adjusted by the free float of each company.
AIAF Market
The market of the Association of Financial Assets Intermediaries (AIAF):
a) It is a secondary market of securities of an organized nature.
Present Value Calculation
Determine the incorrect statement:
d) To calculate the present value of a set of future cash flows it is enough to discount these to the internal rate of return of similar bonds.
Temporary Structure of Interest Rates (ETTI)
When talking about the temporary structure of interest rates (ETTI) we are referring to:
d) Answers (a) and (b) are correct.
- a) The relationship that exists, at a given time, between the cash interest rates of instruments of the same credit quality, liquidity and tax treatment, and their terms to expiration.
- b) The relationship that exists, at a given time, between the profitability at maturity of zero coupon bonds of the same credit quality, liquidity and tax treatment, and their terms to expiration.
Forward Interest Rate
The FORWARD interest rate will coincide with the expected spot rate in the future:
a) In the unbiased model or pure expectations.
Zero Coupon Bond and Forward Rate Calculation
A one-year zero coupon bond issued by the Public Treasury is currently quoted on the market at 970 euros, while one of two years of life is sold at 925 euros. Determine the implicit or forward short-term interest rate (one year) for the second year, knowing that the reimbursement value of both bonds is 1,000 euros.
a) 4.865%
Two-Year Ordinary Bond
(continued) The Treasury plans to issue a two-year ordinary bond that pays an annual coupon of 5%. Knowing that the nominal value of this bond is 1,000 euros. To what price will the bonus be sold? Use the data you need from the previous question.
b) € 1,019.75
Bond Price in One Year (Expectations Theory)
(continued) At what price will the bond be sold within a year, if the theory of the expectations of interest rates?
c) € 1,001.29
Bond Price in One Year (Liquidity Preference Theory)
(continued) At what price will the bond be sold within a year, if the theory of the preference for liquidity and the liquidity premium is 0.5%?
a) € 1,006.09