673_hw1 - NBA 673 Introduction to Derivatives Due in class...

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1 of 2 NBA 673 – Introduction to Derivatives Due in class on Thursday, February 9. Your answers should be as clear, precise, and brief as possible. Problem 1 : Consider the zero-coupon bond prices given below: Zero-Coupon Bond Price Maturity (Days) .999182 30 .996750 60 .992738 90 .980844 180 a) Compute the discount rates i d for these bonds. b) Compute the simple interest rates for these bonds. c) Compute the discreetly compounded rate per year, i c , for these bonds. d) Compute the continuously compounded rate of interest r for these bonds. e) Compare these rates in a table. Is there any relationship between i d and i s ? Ia there any relationship between i c and r? For this problem, assume a 365-day year in all cases. Show your calculations; build a table to hold the numerical values that you compute. Problem 2 : a) Consider a portfolio consisting of one unit of stock S and short call with strike price K written on the respective stock. Draw the payoff diagram (at the time of of the option’s expiration) for this portfolio; also, show the payoff diagrams of the two portfolio components. b)
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This note was uploaded on 09/28/2008 for the course NBA 6730 taught by Professor Janosi,tibor during the Spring '06 term at Cornell.

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673_hw1 - NBA 673 Introduction to Derivatives Due in class...

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