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Midterm%20Exam%20Solution_Fall%202009_Tsing%20Hua_Blackboard

Midterm%20Exam%20Solution_Fall%202009_Tsing%20Hua_Blackboard...

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NO pencil 1 Student Name: _____________________________________________ Student ID Number: ____________________________________________ Corporate Finance Midterm Examination Dr. YiLin Wu Spring 2009 Instructions 1. This is a closed book examination 2. This is a 3 hour exam. 3. You may use pen (NO pencil), rubber, ruler, calculator, and one piece of an A4 page. If you use pencil, the grade is zero . 4. The exam paper has all 5 pages including this cover. 5. Please read the questions carefully!

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NO pencil 2 I. Each question counts 10 points 1. What is the price of a one-period binomial European call option when Today’s stock price=50, strike price=52, u=1.2, d=0.8, r=0.05, and T (each binomial period)=1 (Year). Please use the replicating portfolio approach. 60 60 + B = 8 40 40 + B = 0 Solve for △ and B = 0.4 > 0, B = 15.21967 < 0 + B = C ° = 0.4 50 – 15.21967 = 4.7803 2. What is the price of a one-period binomial European put option when Today’s stock price=50, strike price=52, u=1.2, d=0.8, r=0.05, and T (each binomial period)=1 (Year). Please use the replicating portfolio approach 60 60 + B = 0 40 40 + B = 12 Solve for △ and B = 0.6 < 0, B = 34.24425 > 0 + B ° = P ° = - 0.6 50 + 34.24425 = 4.24425 3. Stock A costs \$10 today and its price will be either \$7.5 or \$12.5 next period. Stock
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