ACT245H1 W07 Final Privacy ID A with sols for web v12

ACT245H1 W07 Final Privacy ID A with sols for web v12 -...

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ACT245H1 W07 Final Privacy ID A with sols for web v12 Page 1 out of 20 Family name, comma, personal name:__________________________ Your student ID:___________________________________________ UNIVERSITY OF TORONTO Faculty of Arts and Science ACT245H1S Winter 2007 Duration 2 Hours Aids: All calculators allowed. Scrap paper OK. Instructor: Keith Sharp PhD FSA NOTES: 1. Scrap is to be handed in with this book. It‟s OK to write on book. 2. This is a closed book exam. 3. Multiple choice: only your letter answer mark sense sheet will be graded. 4. Each of the 24 questions: 10 points correct, two if blank, zero points if wrong 5. So expectation if you guess is the same as leaving a blank. 6. Make sure you‟ve indicated your letter answers on the mark sense sheet before time‟s up 7. Please stay in your seats and don‟t talk till all question papers and mark sense sheets have been collected. 8. Photo ID on desk during exam please. 9. Name and student ID on this question paper, on mark sense sheet and on scrap please. 10. Please identify your Privacy ID in the page footer (A, B, C or D) and code it as the answer for question 25. 11. Good luck!
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UNIVERSITY OF TORONTO : ACT245H1S WINTER 2007 FINAL ACT245H1 W07 Final Privacy ID A with sols for web v12 Page 2 out of 20 1. (Assignment Mar 29, 2007) A stock index is currently trading at S 0 =100. A one-year forward contract is available for long or short position on the index with forward price $104.40. The continuously compounded rate of interest is 6%. Suppose that the index pays continuous dividends at rate 2%. Determine the implied repo rate expressed as a continuous rate. (A) Less than 6.400% (B) 6.400% but less than 6.500% (C) 6.500% but less than 6.600% (D) 6.600% but less than 6.700% (E) 6.700% or more (A) Solution Implied repo rate r is that risk- free rate at which the forward price is ‘correct’. 104.40 = 100*exp(r - 0.02) r= 0.063059
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UNIVERSITY OF TORONTO : ACT245H1S WINTER 2007 FINAL ACT245H1 W07 Final Privacy ID A with sols for web v12 Page 3 out of 20 2. (Assignment Jan 18, 2007) According to the current term structure of interest rates, the effective annual interest rates for 1, 2 and 3 year maturity zero-coupon bonds are: 1-year : 0.08 2-year: 0.10 3-year: 0.13 Find the two year forward effective rate of interest, i 2,3 (A) Less than 17.000% (B) 17.000% but less than 18.000% (C) 18.000% but less than 19.000% (D) 19.000% but less than 20.000% (E) 20.000% or more ( D) Solution 1.13 3 /(1.10 2 ) 1 = 19.248% 3. You are given: s 1 =i 0,1 =0.083 s 2 =i 0,2 =0.090 i 2,4 =0.115 Calculate s 4 (A) Less than 0.10000 (B) 0.10000 but less than 0.10050 (C) 0.10050 but less than 0.10100 (D) 0.10100 but less than 0.10150 (E) 0.10150 or more ( E) Solution (1+s 4 ) 4 =(1+s 2 ) 2 (1+ i 2,4 ) 2 = (1+0.09) 2 (1+0.115) 2 Hence s 4 = 0.102429
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UNIVERSITY OF TORONTO : ACT245H1S WINTER 2007 FINAL ACT245H1 W07 Final Privacy ID A with sols for web v12 Page 4 out of 20 4. Steve sells a stock short at a price of P, and buys it back one year later for 1275. The required
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This note was uploaded on 04/24/2011 for the course ACT 245 taught by Professor Sharp during the Spring '07 term at University of Toronto- Toronto.

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ACT245H1 W07 Final Privacy ID A with sols for web v12 -...

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