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Thanks much for the detailed explanation, that makes clear.

Hello, Can you explain how did the solution below arrived to short the contracts. I was thinking other way round ie., long the contracts and couldn't get it whether it should be long / short. Question: 173.2. A portfolio manager wants to hedge her bond portfolio this is worth $30 million and...

I suppose, I managed to get the reasoning (was bit too fast to post to forum) That is due to the price delta change from face value. 100 - 95.50 / 95.50 which gives the discrete frequency. Converting back to continuos by log and number of days, it gives the right one.

Hello, My question is regarding below: The Quoted Price of a 180-day Treasury bill is 9.00. What is the True Yield (a.k.a., effective return) to the investor under an actual/365 basis (ACT/365) with continuous compounding? Solution: Cash Price (Y) = 100 - P * n/360 = 100 - 9.00 * 180/360 =...

Thank you, Jayanthi.

Hello This is in regards to explanation on Hull 04.13 question on the par yield calculation from sets of upward sloping spot rates. Suppose that the 6-month, 12-month, 18-month, and 24-month zero rates are 5.0%, 6.0%, 6.5%, and 7.0%, respectively. What is the 2-year par yield? Answer was...

I suppose, by weighted average means, discounted factor * ( Probability of up * Volatility of Stock Up (Su) + probability of down * volatility of Stock down (Sd)). This gets the solution correct. Got this finally.

Hi- I am trying to understand the answer for this problem: The current price of a stock is $30. In each of two time steps, where each time step is three months, the stock may go up by 8% or down by 8%. For example, the stock might go up twice in a row to realize a price of $30*1.08*1.08 =...