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 semiannual 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 sixmonth 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 oneyear zero rate? Based on this answer and
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 Spring '12
 Poniachek
 Derivative, Options

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