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Unformatted text preview: OFFICE USE ONLY Page 1 of 8 Monash University Semester Two Examination 2006 Faculty of Business and Economics Department of Accounting and Finance EXAM CODES: AFF3121 TITLE OF PAPER: INVESTMENTS AND PORTFOLIO MANAGEMENT EXAM DURATION: 3 hours writing time READING TIME: 10 minutes THIS PAPER IS FOR STUDENTS STUDYING AT: (office use only - tick where applicable) Berwick Clayton Peninsula Distance Education Open Learning ; Caulfield Gippsland Sunway Enhancement Studies Other (specify) During an exam, you must not have in your possession, a book, notes, paper, calculator, pencil case, mobile phone or any other material/item which has not been authorised for the exam or specifically permitted as noted below. Any material or item on your desk, chair or person will be deemed to be in your possession. You are reminded that possession of unauthorised materials in an exam is a disciplinable offence under Monash Statute 4.1. AUTHORISED MATERIALS CALCULATORS ; YES NO (Permitted calculators: Citizen SRT-135, Casio FX82MS scientific calculator, the Casio FX82AU scientific calculator, and Sharp EL-735 financial calculator, or calculators with an 'approved for use' Faculty label) OPEN BOOK YES ; NO SPECIFICALLY PERMITTED ITEMS YES ; NO if yes, items permitted are: This paper consists of six (6) questions, one (1) formulae sheet and a Normal Distribution Table printed on eight (8) pages . This is a FINAL paper and a CLOSED BOOK examination. The total marks available in the examination are 120. This examination constitutes 70% of the total assessment for this unit. Students should attempt ALL questions on this examination paper. To be eligible for a pass in this unit, students must earn a minimum of 50% in the final examination. PLEASE CHECK THE PAPER BEFORE COMMENCING. THIS IS A FINAL PAPER. STUDENT ID: ... DESK NUMBER: . THIS EXAMINATION PAPER MUST BE INSERTED INTO THE ANSWER BOOK/S AT THE COMPLETION OF THE PAPER OTHERWISE A FAIL WILL BE RECORDED OFFICE USE ONLY AFF/W3121 INVESTMENTS AND PORTFOLIO MANAGEMENT Page 2 of 8 Question One (a) Using Black-Scholes Option-Pricing formula find the price of a call option for a stock with a current price of $24 and an historical volatility of 25 percent that is expected to rise to 40 percent. The option expires in three months and has an exercise price of $20. The risk-free rate is 1 percent (0.01). What is the price of the corresponding put option using the put-call parity formula? (5 + 3 = 8 marks) (b) The spot price of gold is $275 an ounce. The T-bill rate is 0.33 percent per month. What is the appropriate price for a three-month futures contract for gold?...
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