{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

ACT245H1 W07 Final Privacy ID A with sols for web v12

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

This preview shows pages 1–5. Sign up to view the full content.

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
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
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 ( 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 (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

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
UNIVERSITY OF TORONTO : ACT245H1S WINTER 2007 FINAL ACT245H1 W07 Final Privacy ID A with sols for web v12 Page 4 out of 20
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}