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Unformatted text preview: ﬂl' 21. The atuck price of m experiencesthe ﬁallowing ﬂuctuatinns over the year: The bmkerage commission is {1.4% {If the bid. a: :12}: price.
Dan buys 100 shares ufm on April 1 23111 22112 all uEhia sham on October 1. Détermine Dan’s gain 2.2 of Dumber 1: (A) 222.22
(B) 222.52
{C} 252.52
(B) 365.35
(E) 405.51 3"“! Exam m: Ptacﬁue Exam 2 ('0 .. 9. 011 J ED11an 1,2DDT, Giudjr eeld atetil: Z ahert fer $113!} with a margin requirement CH? 311%.
On December 31, 200?, the ateek paid a dividend at $3, and an intereet amount of $5 WEB credited to the margin aeeeunt.
011 January 1, EDGE, Bind; covered the short eale at a price of $95, earning a return at” 9.3%.
Calculate M.
{A} 25%
{B} 33%
{C} 50%
(D) Em
(E) T596 Exam FMI'Z: Preeﬁee Exam 2 /""'~.
. 16. n a Steve and Laura each sell a diEEerent atank short at the beginning of the year acmrding to the fnﬂewing table of mfermatian. _
Buy back price
— m TE
5%
E56 The margin interest rate is an annual aﬂ'ectiva rate. Eat]: 51th page its dividend a]: the
end of the year. Immediately thereafter, Steve and Laura each 12.1.11;r back their stock a
the price indicated in the table. . Steve'a annual eﬁeetive yield an the 511011: aala excelst1};r matches Iaura‘a annual eﬂ'eetive yield an the ahnrl: Hale. Calculate X.
{A} 525
(B) 550
{D} 5'15
(D) 5011'
{E} 625 Exam M2: Practice Exam 1 (a) .13 @ 3. Glen sells lﬂﬂ shares of a steel: short. The stock’s current 'per share price is $‘l’5. After
one year, the stack pays a dividend of $1.51] per share. Immediately after the dividend is
paid, she huys the stock hack for $11 per share. ' ' Short sellers are required to deposit M915 Bf the initial value of the shares that are said
shert in a margin amuat at the time of the short sale. ' The prevailing interest rate is an annual effedtive rate of 5%. Glen earns a 10.0% yield an the treneaéﬁon.
Calculate M.
(A) 25% (B) 33% (C) 50% {D} 57% {E} “16% f'"\ x—\. 19. The futurea price of the 3:92P 500 index is currently $1,500; Yen enter' intc Eu 5:92P EﬂD
futures{minaret.113.(45L3 M m WM)
The initial mmginiaﬂﬂ'ﬁﬁ. Yen earn a eonﬁnueualy compounded rate cf 4'53 an your
margin balance.
Your pcaiticn is marked to market W'Eﬁkljr and the maintenance margin ia T593 cf the
initial margin amount. ' I
DetErmjne the greataat 5:92P EU!) indeI futures price one week from tadayr at which 3311
will receive a margin call,   ' (A) 1,433.33
{13) 1,433.23
(0} ' 1,433.33
(D) 1,432.72
(2:) 1,424.11r Exam 33112: Practice Exam 1 4 [av—lux .— 29. Which of the following beet deecrjhe the maximum gain fer a short cell? (A) UnJimited (13) Forward priee (C) Strike price less ﬁlture value ef premiums
(D) Flmue value of premiums leee strike price
(E) Future value of premium Exam FMr'Z; Practice Exam 3  f . 9! 23. A certain stack is currently priced at $65. Dividends are paid atthe End of even quarter
and the ﬁiﬁdcnda are level met the next 15 gem. The next ﬁividandcf $0.75 will he
paid cue quartcr. ' The annual effective interest rate is 1ﬂ%.
Determine the price of a tenyear prepaid forward contract. (A) 19.11
(B) 25.31
(C) 32.53
(D) 32.20 J
(E) 45.39 Exam FMS: Practice Exam 2 I) You are given the following information about stock KY3: I The current stock prise is $5. I I The etaoh pare dividends oon1'.inu:'_lhue15_.T at :1 rate of 15' . I The forwerd price for deform1.T of one share of m stock in nine monthe is $F. I The corresponding forward premium is 1.1]?7334.
The oontinuouely oompounded riabﬁee intereiat rate is 15%. Determine a . (A) one]
(B) nose
(0) a nose
 (D) noes
(E) new Exam FlaHE: Preotioe Exam 2 IO [D Aardvark Airlines (AA) would like in limit its exposure to ﬂuctuations in the price of jet
ﬁuel. AA expects the market price for a gallon of jet fuelin one year to be between $2.512)
and $235. Its expected revenue per gallon of jet fuel is $2.70. AA has decided to hedge this risk by selling a collar using bane put option and one call
option. The following table contains the various option prices available in AA: The continuously compounded riskfree interest rate is 5.35%. Based on AA's expectations for the market price of jet fuel in one year, which intervel
represents the range of possible proﬁt one year from now on a gallon of jet fuel basis ﬁar AA? (A) 0.27 to use
(B) use to 0.37
(C) as? to {HE
(D) (1.42 to an
{E} {1.47 an ass Exam FMEEE Practice Exam 1 s K‘F'N * CH}. You are given the foiloteing information: fd—h‘K The current price to buy one shore of no stock is $12!}.
The stock does not pay dividends. A European cell option on one shore of EYE stool: inith s strike price of $125 that
expires in oil months is $169. ' A European put option on one share of m stock with a strike prime of $125 that
expires in six months is $9.39. The riskfree interest rate, compounded continuously, is r. Caleuhite r. (A) 5.35%
(B) 5.4oea
(C) 5.45%
(D) 5.50%
{E} 5.65% .._..2. Yum are given the fellcwing informeticn: .  Dne share of the 133:5 index eun'eritl],r sells for $1,512").
I The FEE index dcee not pay dividends. I
 The annual eEective riakEree rate is E'iE. You would 111m to lock in the ability to buy this index in one we fnr menu. You create a
synthetic forward pDeitiDn cm the index with a Enrupeen put option and a European cal]
option with the amne strike price. The price cf the put is $154.45 and the price of the call is $145.D1.
Determine the pruﬁt at time one year if the price of the index is $1,551) at that time. (A) 40331 (13) 4121
(0) sum
(D) 111.3?
m . 16332 . _ \ . .EmmmeemeeEme1 . _ KO /"‘\
‘i' 24. The current prioe of ateck KY2 i3 $55. Trudy i3 heerieh on the steel: and creates a
synthetio short forward position using one 33.11 and one put on the stock, eaeh with a atriite price of $55 and a Bizmonth time to expiration. The price of the put option ie $5.53 and the price of the cell nption is $1.95.
The annual eﬁeoﬁve riekfree interest rate ie 4%. I Aeeuming the prioe of the 3toek at time 3i: monthe i3 $47.55, determine Trudy‘e proﬁt at that time. (A) 3.43
{B} 3.57
{0) 3.33
(D) 3.73
(E) 3.81 Exam M2: Practice Exam 3 . r3
' 13. “min:11 of the following pmducea the name c3511 ﬂours as 5.10115 position on a stock? (A) Short farmrd and short zermcnupnn band
(B) Long ﬁnrward and short mamcoupon band
(C) Short Enrwaﬁ and lung zencoupon bond
{D} Lung forward and long zemcﬁupan band
(E) Long forward and lung call A Exam FMS: Pracﬁue Exam 1 my #17. Mm Ellen sells 'ene lowerstrike sell and buys 2 higlierstrilre cells, with all the options
having the same underlying asset and the same time to meterit; Whieh ef the following graphs depict the pattern 'eE preﬁ’cs from this strategy? w witas
{0% mtg
my: ‘ /”_\_ Exsm M1Prseﬁe'e Exam 3 m 10 .1 30. Which of the following graphs depict the preﬁt pattern ef a written strangle? I
G’s} ‘ {B} l [0) ‘ {D} I {E} l “END {IF MNATIDN“
*' STDP 1* I EIemFMfﬂzPraeﬁeeExemE . . I  r3
._. 11‘. Which of the following atatementa about. collate ia FAIEE? (A) A collar ia the purchase of a loweranike put option and the sale of a higherstrike
anl option. (B) The collar width ia the difference between the call and the pat strike prioea.
(C) A collared stock entaﬂa buying a collar when the stock ia already owned. (D) A written collar resembles a short forward contract. I (E) For any given etocit. there in an inﬁnite number of aaaociated zerotcoat collara. Exam 13W: Practice Exam 2 3  “ “t. “'13. Which of the following are reaeona why ﬁrms might elect ta hedge? (A) Truancﬁdn {mats (B) Gustbeneﬁt analysis (C) Managerial risk averainn
{D} Managerial Bonnn15 (E) Tax and Emailing complications Exam M2: Fred:qu Exam El  “we/215. dim investm pmeh'e muddle examining efaEdmpeen eel] optical and e p11; eptien.'wiﬂl_m'ilte.  '
' priem ufﬁﬂ and expiration in ti mm; “H I ' . ' .
m priee afﬁne eel] uptiun is :4 endthe priee nfthe pm ie ea. The deli—ﬂee Tneu": n. with: mmhmmmimemmammim ddte'rieﬁﬁ‘? ' {Au—5 ' {En—2' mm. {D}; _ _tIe:' l. .Fuemreu, _ . ' " _ . ' ' . _ 321 paying smelt. The sited: is emery mined :1 I!!! and me. eenﬁnueuely mmpnunded ﬁnkﬂee hum rah: is
3%. Thedﬂtailuftheuptinnare: _ 
. . Opﬁm I ' Optien 2
Type ' Pm ' can
Seen ' ' _ ' e: _ a: ' _
. . 11m uphhﬁen tau um . _ um dean . .
' Eeeed 1111 his endlyeie. the immune has decided 11ml: the pn‘em eflhe twp uptiune do not present any erhihage
 appmumiﬁa. He decides he buy mu enlls and set] mm mm. Cnleuﬂete the net enst nt‘thie henaaetim. {Hint A positive net east means the immune in'y'e mnney hem the
mmdun. A negetiee em: means the hweelm Ieeeim mulley.) I Mfr. [m 3 Fall 2mm An inumhu' been 'quumd a price on Em uptiune en the memedividend ' m (aye—ea (hp—ﬁnancie—ge (Cjb—Zﬂandﬁlﬂ (madman {Ewan _ 3.33. The eurrml: plied ﬁfth in .99 per peeled. The SH]ng mamId": .12 per peund per yeah; puyahie qqeﬁeﬂy in
1/ advance. Interest mm are 5% payee: mmpuundea‘i emﬁnunuely.
Cnietdele the durumd prim efﬁn far deli'eely in nine month: [A195 {B} .9? {C} .99 _ {D} 1.9] (E) . A hand has Mmﬂeydmﬂen af'lﬂJ] and e. convexity elf199. The yieldmImenn'ity {dental eﬁeeﬁwyield} a": 395.. Using modiﬁed duration and enmexity, intimate the paemlege price: ehmge effhe bend Earn 99
in pelnl rise in the yieldmaturity. (1994 CA5. EXAM ﬂ] ' {A} _ 5.99:. {a} — 5.295 {C} {m (n) 52 ea [E] 15391.95 3H. Whieh ufthe thﬂeudng elemIlene: ale tree fer an inveehnr Selling a steel: ehmﬂ
L/ I. The shun seller in huiliah an die seine. '
' IL The ehen‘. Edie ﬁleere the inveetur to proﬁt the! decline in e. Steers plied.
1]]. The immr mm pay all of me henseetinn cum hemmed when buying and sellhlg die smelt. (A) LI! ' (311.111 [€111,111 {D1 ﬁnmym (Ewan; FIJ no. wmnttnftﬂiwmgmmmimei ' '
. mmmmﬂmmmnofahﬂmmmdm .
11'. Fmoamaommhmhdonnohmwi . hr
IEAForwardoonaantiathommafhmooohm on. {itHour. [B}Irmo_' @111me  [m'rmurom' (momma I" 29. moi oftha ohm; m o [oio) um? I. Ashodaaloiaanoptimi.
11 AFWWEI'anntrantiEanopﬁrm
111. A Futures Colinnot is ootan optioo. _ {Mimi}: gammy. mommy IfDJMofM' {EMIoftliom
Samplersr5 3D. The diagramon the right on“: proﬁt diagmn for
which of tho Folloun'ng? Llamalbw JI. Strangle IEStmddle Mimiy B)]Ionl;.r  cm] only Di'liwuof'lhﬁm E}Hono ofﬁtom 3'43 I I I FM Sonmute Tm j
24. [ms 3] Given the following inﬁoirnaﬁoii: I '
(i) Strike prioa =31: said om mi. print: :29. '  _._ Dividends oflﬁﬂmuxpoatadtohopaidaﬂﬂliﬂndT mum
{in} continuously oompaundad riahﬁoa iotaoat ram is 10% por 1mi
 {11:} Prior afaﬁmonth Europm call with a strike pﬁoa aim is 2.. Calculate the prim of a put: optimi that expires in 6 months.
{A} 4.42 {a} 444 {o} 4.46 {D} 4.43 (E) 4.50 ﬂwaﬁan hr 1'? "Iii. 11! A shack is expand to pay a. dividend For share in one month and again in four monﬂio.
The 51on prion is 1:10 and the rat: i5 5% compoundod continuously. ' 
IT. Chloulatu tho foromrd micefur Icloli~.r1ar:,lr in 6 months. Lat D = proJoni 1.railuio'uzuftho dividends.
on 1 I4 . {a} 1 :9 (cl 124 (D) 129 . (E) 134 '
EH. 'I'hnoa months latar, tho prion of the stock in I [5 and tho risklino rat: is still 5% oompoondad continuously.
What in the forward prim: oftho sumo moan[a5 in .thlun ID oowddhmhla in 3 months?
{A} 1 14  (B) 119 (C) 124 ' ' to} 129 . ‘ (E) 134
HR .' A lﬂyur 3.0% :aupon bond. with par. Value: of 3] till, is laying oouptma humannually in wealth; at a
_'a1dtomao.uity of 7.0%. What ia tha omront yioldl . .
[A] 1.1% (a) mas {o} 7.35: {o} 14% _ (E) 7.5% 3:1.uwoi.1iiaia1uwmg:_ _ _ . ._
. (a Stockpioa=5ﬂ  32.. {iiJ Thar'okﬁootato, r, ia m'mmaalmofﬂﬁmmpmmdod
(ﬁI'J‘l'lupﬂmofaﬁtnonﬂiﬁtaopun call'opﬁmwtmmonmoia: pﬁoolofﬁ= #ﬂ‘ia 5.
{iv}'l'ho1n'iooofa6atrmth withmya'ioo ofKB 4E iaJE
{it} no mm ionnit pays no dividonlhi Dan the puo‘oaIlparity rnim'ionalljn to datum5.1K (2am CA5 it} I (1)1.11 {a} 1.13 _ (£31.15 [911.]? :' ($1.19 215. ﬁlm tho lbliow'ing:  . _ ‘ “
(i) The rialeﬁ'oo rat: is an annualrato of .“ = 3% compoundodoonﬁnuoualy.
(Elmamonthltttarmpﬁoaforanaaaatiaﬂﬂﬂ;    _  (iii) Diuidouda on Ina aﬂat ato paid oanﬁnuoual'y. at; constant annua.l rain of q #1453.
Maria ﬂannnrmtrn'iao ofﬂtiommat, winningnoarhinageoppm'tlnﬁty‘? [2am CAR 3‘] [A] not '{a) 39a (in 392 {n} 394 {a} 396 314  ' . WW2 T953 21". Giym tho inﬂowlag inftnmm'ion about European options on amok ABBA.
{i} Strike prion ia 515.
[ii] Emmott pnioa ia. l'ﬂﬂ.
{iii} Time to oxpiration la 2 year.
{iv} 11'": amok pays no dividmda;
[It] Price ofaputia'i'S ' 
Calculate the ofthooaii on ABBA with 511113 prim 95 iftito rinksfrat: rate is 5% oomptnmdad
oontiuuotmly. ' '  ' ' (MI4.19 {a} 14.31 {(2)1433 _ (D) 1.4.35 {a} Nil”. 13. Consider lilo lollowing inyushnunt arming)": _
Buy a null option Will a attiio: K and morality Tami buy a put optionth mama'in T‘
This 5mg}: is called a . .
{A} Shingle {B} Straddla {C} Butterﬂyr Spread {D} Boar Spread {E} Collar 29. You own one ahani: ofaaaolt and make the followingh'anaalorioaa: _
it; You buy on: put ‘i'i'i'th aollua prion argon; which ma also. t.”  
_ (ii) vim no: one will with a atriltn prion ofﬂilﬂantaalla turnout
If an tho prion ﬁfth: stout ' 45,1nli‘lﬂli5 your payuﬂ? [anus can a] _ {man  [a]. 39 [C] 4n (9)44 {E} 45 3D. Which oFtlIo Hallowlog'atamonﬁa} am out: for someone buying a European option on a atoolt'l"
I. That: a; an obligation to boy or sol] ﬁta amok at a parliaular prim on a particular onto.
IL A fee {premium} is paid at an time the option is bought {or paid}.
Ill. Tho option may he onmiaod a'tarq.r tinla during tho life of tho option. _
{A} Ionly (3)11 onlyr {C} III only {D} Two of thorn {E} All ofﬁtotn ...
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This note was uploaded on 03/02/2012 for the course MATH 172 taught by Professor Kong during the Winter '09 term at UCLA.
 Winter '09
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