Financial Derivatives Financial Derivitives a Term Paper

Open, View, and/or
Download this Document

Total Length: 1482 words ( 5 double-spaced pages)

Total Sources: 0

Page 1 of 5

The Black-Scholes-Merton model assumes (circle one)

The return from the stock in a short period of time is lognormal

The stock price at a future time is lognormal

The stock price at a future time is normal

None of the above

11. Volatility can be defined as (circle one)

The standard deviation of the return, measured with continuous compounding, in one year

The variance of the return, measured with continuous compounding, in one year

The standard deviation of the stock price in one year

12. A stock price is $100. Volatility is estimated to be 20% per year. What is the an estimate of the standard deviation of the change in the stock price in one week (circle one)

$0.38

$2.77

$3.02

$0.76

13. To create a range forward contract in order to hedge foreign currency that will be paid a company should (Circle one)

Buy a put and sell a call on the currency with the strike price of the put higher than that of the call

Buy a put and sell a call on the currency with the strike price of the put lower than that of the call

Buy a call and sell a put on the currency with the strike price of the put higher than that of the call

Buy a call and sell a put on the currency with the strike price of the put lower than that of the call

14. Suppose that General Motors Acceptance Corporation issued a bond with 10 years until maturity, a face value of $1,000, and a coupon rate of 7% (annual payments). The yield to maturity on this bond when it was issued was 6%.

a. What was the price of this bond when it was issued? $1,000.

b. Assuming the yield to maturity remains constant, what is the price of the bond immediately before it makes its first coupon payment?1000.

Stuck Writing Your "Financial Derivatives Financial Derivitives A" Term Paper?

View All Our Example Financial Derivatives Financial Derivitives a Term Paper

Have A Custom Example Essay Written



c. Assuming the yield to maturity remains constant, what is the price of the bond immediately after it makes its first coupon payment? $930.

15. What is the price of a five-year, zero-coupon, default-free security of 4.8% with a face value of $1,000? $48.

16. Draw the diagram that tells you if you buy a Bond what its relationship is to Call Yield, Yield to Maturity, and Yield to a Call. A bond can be "recalled" at its maturity date if the percentage rate has gone down because it can be refinanced at a lower cost, if the percentage rate has gone up, you would do nothing because it is now a better deal. Yield to Maturity is the rate of return expected if the bond is held until maturity. Yield to a Call is when you redeem the bond at the callable date, which is before maturity.

17. Using a binomial tree, what is the price of a $40 strike 6-month call option, using 3-month intervals as the time period? Assume the following data: S = $37.90, r = 5.0%, ? = 0.35

2.50

2.76

2.92

3.08

18. Compute ? For the following call option. The stock is selling for $23.50. The strike price is $25. The possible stock prices at the end of 6 months are $27.25 and $21.75.

A) 0.4091

B) 0.6822

C) 0.8433

D) 0.9216

19. Using a binomial tree, what is the price of a $40 strike 6-month put option, using 3-month intervals as the time period? Assume the following data: S = $37.90, r = 5.0%, ? = 0.35

A) $3.52

B) $3.66

C) $3.84

D) $3.91

20. What is the delta on a $25 strike put? Assume S = $24.00, ? = 0.35, r = 0.06, the stock pays a 2.0% continuous dividend and the option expires in 40 days?.....

Show More ⇣

     Open the full completed essay and source list


OR

     Order a one-of-a-kind custom essay on this topic


sample essay writing service

Cite This Resource:

Latest APA Format (6th edition)

Copy Reference
"Financial Derivatives Financial Derivitives A" (2011, June 13) Retrieved May 20, 2024, from
https://www.aceyourpaper.com/essays/financial-derivatives-financial-derivitives-42485

Latest MLA Format (8th edition)

Copy Reference
"Financial Derivatives Financial Derivitives A" 13 June 2011. Web.20 May. 2024. <
https://www.aceyourpaper.com/essays/financial-derivatives-financial-derivitives-42485>

Latest Chicago Format (16th edition)

Copy Reference
"Financial Derivatives Financial Derivitives A", 13 June 2011, Accessed.20 May. 2024,
https://www.aceyourpaper.com/essays/financial-derivatives-financial-derivitives-42485
   

Open, View, and/or
Download this Document
order custom essay example