midterm 1 - Economics 136 Financial Economics Midterm 1...

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Economics 136. Financial Economics Midterm 1, Fall 2009 Write your name and section time on your blue book. You may use a calculator and one double sided sheet of handwritten notes. 1. True or false. (25 points, 5 each) Are the following statements true or false? Explain your answer in no more than two sentences. You will be graded on your explanation. (i) If the yield curve is upward sloping and does not move over time, then the prices of Treasury bonds are falling as time passes. (ii) A value-weighted portfolio requires no rebalancing, because value-weighting implies that one must hold an equal number of shares of all companies in the portfolio. (iii) Consider a European call and a European put option on ABC stock with the same strike price X and expiration date T . Suppose that, due to a change in market conditions, the price of ABC stock increases by $ 2 , and the put price falls by $ 1 . If the riskfree rate is unchanged, and LOOP holds, then the call price must increase by $ 1 . (iv) The stock price of MSFT on January 1 was $ 25 ; its stock price on December 31 was $ 27 : 85 ; the company paid a dividend of $ : 50 rate was 8 % that year. Then the real simple net return of MSFT that year was 5 %. (v) Consider a coupon bond with face value $ 10 ; 000 and maturity of 12 years which makes coupon payments of $ 450 once a year. If the price of this bond is $ 9 ; 980 , then it±s yield to maturity must be higher than 4 : 5% .
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This note was uploaded on 09/02/2010 for the course ECON 136 taught by Professor Szeidl during the Fall '08 term at Berkeley.

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midterm 1 - Economics 136 Financial Economics Midterm 1...

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