03-PS6-IR

03-PS6-IR - MIT Sloan School of Management J. Wang E52-456...

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MIT Sloan School of Management J. Wang 15.407 E52-456 Fall 2003 Problem Set 6: Interest Rates Due: November 14, 2003 1. Sally Jameson: Valuing stock options in a compensation package Read the HBS case, “Sally Jameson: Valuing Stock Options in a Compensation Pack- age”, that is included in the Reading Package. Then, please help Sally determine the value of the option that she has been offered. 1-2 page write up, calculations not in- cluded, should be sufficient. Remember to demonstrate your calculations. 2. (BKM) Answer the followings: (a) Briefly explain why bonds of different maturities have different yields in terms of the (1) expectations, and (2) liquidity. (b) Briefly describe the implications of each of the two hypotheses when the yield curve is (1) upward sloping, and (2) downward sloping. (c) Under the liquidity preference theory, if inflation is expected to be falling over the next few years, long-term interest rates will be higher than short-term rates. True/false/uncertain? Why?
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03-PS6-IR - MIT Sloan School of Management J. Wang E52-456...

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