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Midterm Exam

# Midterm Exam - Midterm Exam 1(5 points A portfolio consists...

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Midterm Exam 1. (5 points) A portfolio consists of two options on the same underlying stock, with the same expiration date in three months. The stock currently trades at \$85. One option is a call with strike price of \$87. The other option is a put with strike price of \$84. Show the payoff graph for the portfolio. 2. (5 points) A bond pays \$3000 in six months and then \$3000 in twelve months. The current market value is \$5740.41. At semi-annual compounding, what is the annual interest rate? (You can solve the quadratic or iterate; assume the interest rate is a whole number less than 10%.) 3. (10 points) A bond with face value of \$1,000,000 pays the \$1,000,000 of principal in six months. The current market value is \$964,399. What is the six-month zero rate (continuously compounded)? What is the bond yield (continuously compounded)? 4. (10 points) A bond with face \$10,000,000 pays that principal in one year and has current market value of \$9,441,219. What is the one-year zero rate? Based on this answer and
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