Test #2
Review
Definitions
Match each given word with the definition below by placing the letter answer next to the
appropriate word.
Stock Options
Call Option
Put Option
European Option
American Option
Strike Price
Value of a put or call
Risk free Rate
Risk free Ratio
Volatility
A.
An option that may be exercised at any time.
B.
The rate of investments guaranteed by the federal government.
The annual interest
rate for a B week United States Treasury Bill, compounded continuously.
C.
The prespecified price at which the option holder may buy or sell an option.
D.
The right to buy a stock.
E.
The right to sell a stock.
F.
The extent of a stock’s price fluctuation.
Stocks whose price fluctuates widely
continues in this fashion.
Stocks that are stable continue to remain stable.
G.
Securities which give the owner the right, but not the obligation, to buy or sell the
stock for a prespecified price, over a specific period of time.
H.
An option that is exercised at its expiration date.
I.
Maximum of zero or C – S
or
S – C.
J.
Ratios of one weekly close to the comparable close for the preceding week.
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1.
Suppose $2,000 is left in an account that pays 4% interest.
How much money is in
the account at the end of 5 years, if interest is compounded
weekly
?
2.
Find the value of $1,500,000 after 7 years and 5 months, if it is invested at a rate of 4.7%
compounded continuously.
3.
Find the annual rate, r, that produces an effective annual yield of 4.15%, when
compounded continuously.
Round your answer to 3 places.
4.
How long, to the nearest whole month, will it take $40,000 to grow to $75,000 if 5.6%
interest is compounded continuously?
5.
Assume
Y
is an
exponential random variable
with parameter
α
= 5.
(i)
Find
P
(
Y
≤
4), rounded to 3 decimal places.
(ii)
Find
P
(
Y
= 5)
(iii)
Find
E
(
Y
)
6.
Let X be a binomial random variable with n = 20 and p = 0.78.
Use
BINOMDIST
to
create a table listing all possible values of X and the corresponding values f
X
(x).
No print
out from Excel is necessary.
Find the P(X <
8) and the P(X >
11).
Find the expected value
of the random variable X.
Use print preview to print only ONE page.
Your name must be on the print out.
7.
Use the EXCEL file Flowers2.xls to generate a random sample of 50 orders from the
Friday column of orders using simulation with
RANDBETWEEN
and
VLOOKUP.
To
get full credit give the exact command that you used.
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 Spring '07
 Smith
 Math

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