Chapter 3 Homework
Spring 2014
Chapter 3, Section 3.2 and 3.3
1. An annuity immediate pays 100 each year for 15 years. Calculate the present value of this
annuity at an annual effective interest rate of 6%.
2. An annuity immediate pays 300 each year for 2
Chapter 6 Homework
Math 373
Spring 2014
Chapter 6, Section 2
1. Changyue purchases a zero coupon bond for 600. The bond will mature in 8 years for 1000.
Calculate the annual effective yield rate earned by Changyue.
2. Haoyu purchased a 10,000 par value 20
Chapter 1
Derivative Markets
Spring 2014
1. List the four uses of derivatives.
Risk management (hedging)
Speculation (making a bet)
Reduce transaction costs
Regulatory arbitrage
2. List the three perspectives on derivatives.
End users
Intermediaries
Econo
Derivative Markets
Chapter 2 Homework
Use the following information to complete the problems 1-15 and 20-21.
The current spot price of PAC stock is 60.
The current annual effective risk free interest rate is 4.04%.
For forward price for a 6 month forward
MATH 373
Fall 2015
Quiz 6
December 3, 2015
1. The current spot price of the stock of Tang Corporation is 87.00. Tang does not pay a dividend.
The current annual effective risk free interest rate is 6.09%.
You have the following premiums for European style
MATH 373
Quiz 4
Fall 2015
November 1, 2015
1. You are given the following spot interest rate curve:
t
rt
1
2
3
4
5
0.020
0.023
0.027
0.033
0.038
Calculate the accumulated value of a 3 year annuity due with annual payments of 1000 at the
beginning of each
Quiz 2
Math 373
Fall 2014
September 21, 2014
1. Andy borrows 15,000 to pay his tuition.
He agrees to repay the loan with two payments. The first payment will be a payment of P at
the end of five years. The second payment will be a payment of 2P at the end
Quiz 3
MATH 373
Fall 2014
October 21, 2014
1. Yifei is the beneficiary of a Trust Fund. The Trust Fund will pay an annuity for 35 years with
payments made at the end of each quarter. Each payment in the first year is 25. Each payment
in the second year is
Math 373
Fall 2014
Quiz 4
November 5, 2014
1. The stock of Gao Industries pays a dividend quarterly. The next dividend will be paid in 3
months and is expected to be 5. Each dividend thereafter is expected to be 1% larger than the
previous dividend.
Calcu
MATH 373
Quiz 6
Fall 2014
December 4, 2014
1. The current spot price of Munoz stock is 50. The annual effective risk free interest is 6%.
You purchase a one year put contract with a strike price of 47 with a premium of 4.20.
Complete the following payoff-
MATH 373
Quiz 2
Spring 2016
February 9, 2016
1. Jeff has been saving for his retirement over the last three years. He began with a balance of
300,000 on January 1, 2013. On May 31, 2013, he had a balance of 310,000 and deposited
another 45,000 into the ac
MATH 373
Spring 2016
Quiz 6
April 21, 2016
1. The stock of Thomas Corporation sells for 124 today.
The annual effective risk free interest rate is 8%.
The premium for a 6 month European style call on Thomas Corporation stock with a strike
price of 125 is
MATH 373
Spring 2016
Quiz 4
March 24, 2016
1. The stock of Jessicas Diamonds Incorporated does not currently pay a dividend. However, it is
anticipated that the stock will start to pay quarterly dividend at the end of five years. The first
dividend is exp
MATH 373
Fall 2016
Test 3
April 5, 2016
1. You are given the following spot interest rates:
Time t
Spot Rate rt
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
0.020
0.023
0.027
0.033
0.040
0.043
0.045
0.047
0.049
0.052
Calculate f[1.5,4] .
(1 f[1.5,4] ) 41.5
(1
MATH 373
Quiz 2
Fall 2015
September 22, 2015
1. Rachel has 10,000 to invest. If she invests the money at Anderson Bank, she will earn an annual
effective interest rate of i . At this interest rate, Rachel estimates, using the Rule of 72, that she
would ha
Quiz 1
MATH 373
Fall 2014
September 11, 2014
1. Megan invests 10,000 in a fund earning simple interest at a rate of s .
Ben invests X in a fund earning compound interest at an annual effective rate of 4%.
During the 11th year, Megan and Ben earn the same
TEST 1
MATH 373
Fall 2014
October 7, 2014
1. Ralphs Retail Stores have borrowed 100,000. Ralphs will repay the loan with annual payments
of 9,000 plus a drop payment. The loan has an annual effective interest rate of 5%.
Calculate the amount of the drop p
1. (3 points) List the three elements that must be present for there to be arbitrage.
-No risk
-No net investment
-Guaranteed positive cash flow or profit
2. (4 points) Sarah and Kristen enter into a financial agreement. Under this agreement, Sarah has
th
MATH 373
Test 3
Fall 2015
November 17, 2015
1. A three year bond with annual coupons of 800 matures for 12,000. The price of this bond is P
at an annual effective yield rate of 6%.
The current spot interest rate curve is:
t
rt
1
2
3
0.040
0.050
4
5
0.070
Math 373
Spring 2015
Test 3
April 7, 2015
1. The stock for Mao Manufacturing LTD pays quarterly dividends. The next dividend will be 2.10
and will be paid in two months. Each dividend will be 0.30 greater than the prior dividend. In
other words, the first
Math 373
Spring 2015
Test 2
March 10, 2015
1. Linhan borrows 100,000 at an annual effective interest rate of 5%. Linhan will repay the loan
with level annual payments of 9000 plus a balloon payment.
Determine the amount of the balloon payment.
Solution:
I
MATH 373
Test 2
Fall 2014
October 28, 2014
1. Joon is going to buy a 10 year callable bond. The bond matures for 15,000 and pays semi-annual
coupons of 500. Joon wants to buy the bond to assure a yield of 7% convertible semi-annually.
The bond can be call
Math 373
Final
Fall 2014
December 15, 2014
1. (3 points) List the three perspective on derivatives.
Solutions:
End User
Intermediary
Economic Observer
(5 points) Anis wants to buy stock in Garcia Corporation. Garcia stock has a bid price of 100 per
share
Math 373
Test 1
Spring 2015
February 17, 2015
1. Hannah is the beneficiary of a trust that will pay her an annual payment of 10,000 with
the first payment made twelve years from today. Once the payments beginning they
will be made forever to Hannah or her
Math 373
Test 2
Fall 2015
October 22, 2105
1. Hannah purchases a 20 year callable bond. The bond matures at the end 20 years for its par
value of 10,000. The bond pays semi-annual coupons at a rate of 7.5% convertible semiannually.
The bond is also callab
MATH 373
Quiz 3
Fall 2015
October 14, 2015
1. Nancy is receiving an increasing annuity for the next 35 years. The annuity makes quarterly
payments at the end of each quarter. The quarterly payments during the first year are 100
each. The quarterly payment
MATH 373
Spring 2016
Quiz 5
April 12, 2106
1. There are four uses of derivatives. For each of the following situations, state the use that is
being described. Each use will be used once.
Insurance companies are restricted by law from owning stocks in exce