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ACC 107 Quiz9.Key

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38 views9 pages

ACC 107 Quiz9.Key

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mohamadcasir21
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ACC 107: Quiz 9

Basic Derivatives
1. A coffee producer anticipates that it will have 2,000 pounds of coffee to sell in 3
months. The current market price of coffee is P120 per pound, and the producer
wants to lock in this price using a forward contract. If the price of coffee drops to P110
per pound in 3 months, what is the gain or loss from the forward contract?

Exercise Price P120


Spot Price (110)
Gain from Forward Contract P10
Multiply 2,000
Total Gain from Forward Contract P20,000
2. On Dec. 1, 20x1, Kalinga Blend Co. enters into a futures contract to purchase 1,000
kilos of coffee beans on February 1, 20x2 for ₱200 per kilo. The broker requires an
initial margin deposit of ₱20,000. The market prices per kilo of coffee beans are: ₱200
on Dec. 1, 20x1; ₱205 on Dec. 31, 20x1; and ₱215 on Feb. 1, 20x2. What amount of
derivative asset (liability) should Kalinga Blend Co. recognize on Dec. 31, 20x1?

Spot Price, 12/31/20x1 P205


Exercise Price 200
Gain from Futures Contract P5
Multiply 1,000
Total Gain from Futures Contract P5,000

Entry:
Futures Contract P5,000
Gain on Futures Contract P5,000
3. An investor buys 1,000 call options with a strike price of P50/stock for a price of
P5/option. Each option can buy one stock. Calculate the profit or loss if the stock price
at expiration is P60/stock.

Spot Price P60


Exercise Price 50
Gain P10
Multiply 1,000
Price Gain P10,000
Cost of Option (P5*1,000) (5,000)
Gain from Call Option P5,000
4. An investor buys 500 put options with a strike price of P100 for a price of P6/option.
Each option can sell one stock. How much would the profit or loss be if the stock price
at expiration is P112/stock.

Exercise Price P100


Spot Price 112
Loss P12
Multiply 500
Price Loss (P6,000)

Loss from Put Option P3,000


*cost of option
5. On Dec 1, 2021, Archaludon Co. bought a stock option to buy 1,000 sacks of rice for
P1,250 on Jan. 20, 2022. The options were bought for P10,000. On Dec. 31, 2021, a
sack of rice is priced at P1,300 and on Jan. 20, 2022, a sack of rice is priced at P1,100.
How much is the gain/(loss) to be recognized from the option in 2022?
Spot Price, 12/31/2021 P1,300 Spot Price, 1/30/2022 P1,100
Exercise Price 1,250 Exercise Price 1,250
Gain, 12/31/2021 P50 Loss, 1/30/2022 P150
Multiply 1,000 Multiply 1,000
Derivative Asset P50,000 Loss, 2022 P150,000

Loss on Call Option P60,000


Stock Option P10,000
Derivative Asset P50,000

*you don’t use the option, loss is only on the cost of


the option plus the derivative asset
6. On April 1, 20x1, Road Construction Co. acquired a put option on 1,000 shares of
Pinewoods Co. The strike price is ₱100 per share. The option expires on July 1, 20x1.
Road paid ₱600 for the option. Information on current prices is as follows:
Apr. 1, 20x1 Jun. 30, 20x1 Jul. 1, 20x1
Share price P100 P94 P94
Value of option P600 P400 P0
How much gain (loss) did Road recognize on July 1, 20x1?

Exercise Price P100


Spot Price 94
Gain P6
Multiply 1,000
Price Gain P6,000
Cost of Option (600)
Gain from Put Option P5,400
7. On January 1, 20x1, Safe Journey Co. enters into an interest rate swap on a
₱2,000,000 loan. Under the swap agreement, Safe agrees to pay fixed interest of 8%
and receive interest based on the current market rate is at the start of each year. Swap
payment shall be made on Dec. 31, 20x2. The following are the current market rates:
January 1, 20x1 8%
January 1, 20x2 10%
What amount of derivative asset (liability) should Safe recognize on Dec. 31, 20x1?

Interest Received (variable) P200,000


Interest Paid (fixed) (160,000)
Net Cash Inflow P40,000
Divide 1.1
Present Value of Cash Flow P36,363.64
*Derivative Asset
8. On Jan. 1, 20x1, Confused Co. enters into an interest rate swap on a ₱2,000,000 loan
whereby Confused Co. agrees to receive fixed interest of 9% and pay variable interest.
Swap payments shall be made every Dec. 31 in the next three years. The following are
the current market rates:
January 1, 20x1 9%
January 1, 20x2 8%
January 1, 20x3 12%
What amount of derivative asset (liability) should Confused Co. recognize on Dec. 31,
20x1?
Interest Received (fixed) P180,000
Interest Paid (variable) (160,000)
Net Cash Inflow P20,000

Derivative Asset = (P20,000/1.08) + (20,000/1.08^2)


= P35,665.29

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