175E1.2010 - THE UNIVERSITY OF IOWA 22S.175 Exam 1 Monday...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
THE UNIVERSITY OF IOWA 22S.175 Exam 1 Monday February 22, 2010 6:30 – 8:30 PM 106 GLH Write legibly. Show your steps. Explain your reasoning. Simplify your answers. Each question is worth 10 points. Total = 100 points. 1. The risk-free interest rate is constant through time. The time-0 price for a 2-year 105-strike European call option on a dividend-paying stock is 4. The time-0 price for a 2-year 105-strike European put option on the same stock is 6. The time-0 forward price for a forward contract that delivers one share of the stock at time 2 is 100. Determine the continuously compounded risk-free interest rate. 2. A one-period securities market model is given by S (0) = [1 1 1], S (1, Ω ) = 21 . 6 0 00 . 8 001 . 5 x . (The j-th column of the matrix gives the j-th security’s prices in the three states of nature at time 1. The securities pay no dividends.) Determine the range of values for x so that this model is arbitrage free.
Background image of page 1

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

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 04/01/2012 for the course 22S 175 taught by Professor Tang,q during the Spring '08 term at University of Iowa.

Page1 / 2

175E1.2010 - THE UNIVERSITY OF IOWA 22S.175 Exam 1 Monday...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online