MA373 F15 Homework Chapter 1 DM Solutions

MA373 F15 Homework Chapter 1 DM Solutions - Chapter 1...

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Chapter 1 Derivative Markets Fall 2015 November 18, 2015 Copyright Jeff Beckley 2014, 2015 1. List the four uses of derivatives. Risk management (hedging) Speculation (making a bet) Reduce transaction costs Regulatory arbitrage 2. List the three perspectives on derivatives. End users Intermediaries Economic observers 3. The bid-ask prices on the stock of Hyland Corporation are 40.00 - 40.25. Jennifer purchases 200 shares of Hyland Corporation. The commissions on her purchase were 80. At the same time, Aiman is selling 200 shares of Hyland Corporation. Aiman’s commissions are 0.5% of the selling price. Calculate the total transaction costs incurred by Jennifer and Aiman combined. Solution: Aiman => (200)(40) (0.005)(200)(40) = 7960 Jennifer => (200)(40.25) + 80 = 8130 Total transaction costs = 8130 7960 = 170
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Chapter 1 Derivative Markets Fall 2015 November 18, 2015 Copyright Jeff Beckley 2014, 2015 4. Malcolm buys 100 shares of the stock of Jiang Corporation at the same time that Ningzhu sells 100 shares of the stock of Jiang Corporation.
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