Finance Questions Answered: Short Forward Contracts, Interest Rates, and More
What would be the outcome of a short forward contract in different exchange rate scenarios?
(i) 1.3200
(ii) 1.2900
How can we calculate the equivalent interest rate with continuous compounding?
What formula can be used to determine the quarterly interest payments on a deposit account?
How do we calculate the percentage return per annum with different compounding frequencies?
What is the formula to determine the growth of an economy over time?
How can we find the price elasticity of demand for a given demand function?
Let's break down the answers to these finance questions step by step:
Short Forward Contract: If the exchange rate at the end of the contract is 1.3200, the investor will gain $2,000. However, if the exchange rate is 1.2900, the investor will lose $1,000.
Equivalent Interest Rate: The equivalent interest rate with continuous compounding can be calculated using the formula: r = e^(n * i) - 1, where r is the equivalent interest rate, n is the number of compounding periods per year, and i is the interest rate per period.
Quarterly Interest Payments: To calculate the interest paid each quarter on a $15,000 deposit, use the formula: interest = P * r, where P is the principal amount and r is the interest rate per compounding period.
Percentage Return with Different Compounding Frequencies: The percentage return per annum can be calculated using different formulas based on the compounding frequency: annual, semiannual, monthly, or continuous compounding.
Growth of an Economy: The formula to determine how long it takes for the economy to grow a certain amount involves the growth rate per year and the desired growth amount.
Price Elasticity of Demand: The price elasticity of demand at a specific price point can be found using the derivative of the demand function with respect to price and the quantity demanded.