test_3_fall_2009

# test_3_fall_2009 - Name 1 Easy 1 You purchase a 4 year...

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Name 1 Easy 1. You purchase a 4 year \$1500 par value bond with annual coupon rate 10%. Assume interest rates are described by the following spot rates Term Spot rate 1 2% 2 3.5% 3 5% 4 7% Price this bond according to the given spot rates. Calculate the forward rate from year 2 to 3 implied by the spot rates.

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2. Assume the continuous interest rate is 5%, the continuous dividend rate is 4%, the current stock price is 45, and it costs \$4 . 5 to purchase a 2 year 50 strike call option. How much should you pay for a 2 year 50 strike put option? 3. How much should you pay for a 2 year forward contract if the current stock price is 80, the continuous interest rate is 5%, and the continuous dividend rate is 7%?
1. You can invest in 5 year or 10 year zero coupon bonds. You owe \$2000 dollars at year 7. Find the present values of 5 and 10 year bonds purchased to immunize your liability. Assume the annual interest rate is 8%.

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test_3_fall_2009 - Name 1 Easy 1 You purchase a 4 year...

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