MA373 S11 Quiz 5-1

MA373 S11 Quiz 5-1 - If you want full credit you must show...

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Math 373 Quiz 5 April 13, 2011 1. Bryce wants to sell 500 shares of Guo International stock. At the exact same moment, Austin wants to buy 500 shares of Guo International. Bryce’s broker charges a commission of 1% of the proceeds from the sale of the stock. Austin’s broker charges a commission which is a flat fee of 0.30 per share of stock. For example, if you bought 100 shares of stock from Austin’s broker, the cost wou ld be (100)(0.30) = 30. In other words, the commission is not a function of the price of the stock. The bid price for Guo International is 40.00 per share while the ask price is 40.50. Determine the total transaction costs paid by Bryce and Austin combined.
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2. Shuang entered into a long forward on Johnson Industries. The forward expires in 1 year and the forward price is 1000. The annual effective risk free interest rate is 8%. Complete the following Payoff-Profit Table.
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Unformatted text preview: If you want full credit, you must show work and/or formulas. Spot Price Payoff Future Value of Cost Profit 800 900 1000 1100 1200 3. Which of the following are true? Circle each true statement. a. (2 points) The party that sells a put will have the same profits as a party that buys a call. b. (2 points) There are four uses of Derivatives. One of them is Risk Management or Hedging. c. (2 points) A tornado is a non-diversifiable risk. d. (4 points) The cost of a forward is equal to the payoff on a call if the spot price at expiration is less than the strike price. 4. Lauren sell a stock short at a price of 100. One year later she closes out her position by purchasing the stock. The annual effective risk free interest rate during the last year was 6%. Determine the maximum and minimum profit that Lauren can realize on this transaction. Assume there are no transactions costs....
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MA373 S11 Quiz 5-1 - If you want full credit you must show...

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