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**Unformatted text preview: **EXAM 1 INTRODUCTION TO FINANCIAL MATHEMATICS MTH 457-001 SPRING 2012 PROF. G ´ ABOR FRANCSICS D310 WELLS HALL, 353-7962, francsic@math.msu.edu DEADLINE: 12:30PM Wednesday, February 29, 2012 Name: Signature: There are eight problems. These problems are similar to homework problems, problems in the textbooks, and problems solved in lecture. Write down the details (all the details)! Use Excel or Mathematica for numerical calculations, attach printout! Problem Points 1. 2. 3. 4. 5. 6. 7. 8. Total: 1 PROBLEM 1. [5 points]. What is the difference between taking a long European call position and buying the stock? What is the difference between a forward contract, future contract, and options? What is an arbitrage opportunity? Give a detailed explanation (2-3 paragraphs long). 2 PROBLEM 2. [5 points]. Suppose that you write a put option contract on 100 IBM shares with strike price $110 and an expiration date in three months. The current price of IBM stock is $111. What have you committed yourself to? How much could you gain or lose?...

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