Queens College
Department of Economics
Spring 2012
Financial Markets
Business 351  Thurston
Midterm Examination
Questions are equally weighted.
1.
I offer to borrow money from you for 90 days at the following interest rate quotations:
A. a discount rate
Queens College
Department of Economics
Business 351
Summer 2012
Final Examination
Professor Thurston
1 and 2. (double weight) An option on a stock has an exercise price exactly equal to its current
price. Compare two strategies: (a) buy a naked call on th
Queens College
Department of Economics
Fall 2011
Financial Markets
Business 351  Thurston
Final Examination
Questions are equally weighted.
1. I offer to borrow money from you for 30 days at the following interest rate quotations:
A. a discount rate of 8
Queens College
Department of Economics
Spring 2012
Financial Markets
Business 351  Thurston
Final Examination
Questions will be weighted equally, although some questions are doubleweight.
1. I offer to borrow money from you for 30 days at the following
Queens College
Department of Economics
BUS 351 Thurston
Midterm Spring 2013
April 15, 2013
These questions can be answered briefly. But make sure you do it clearly.
1.
Select one. If all investors were indifferent to risk, the yield curve (a) would always
Answers, midterm summer 2012
1. Suppose the (riskless) rate on Eurodenominated Tbills is higher than the U.S. Treasury bill
rate. If the spot rate S is quoted $ per Euro, would you expect that the forward rate F (also
$/Euro) will be higher or lower tha
Queens College
Department of Economics
Spring 2012
Financial Markets
Business 351  Thurston
Midterm Examination
Questions are equally weighted.
1.
I offer to borrow money from you for 90 days at the following interest rate quotations:
A. a discount rate
Queens College
Department of Economics
Business 351 Summer 2011
Final Examination
Professor Thurston
1. A security has a price equal to the exercise price on its call option. Which is higher: the
premium on the call with the same exercise price, or the pr
1.
Fill in the rest of the table correctly (use the blank sheets, not this sheet):
Instrument
Treasury bill
Bankers Acceptance
Commercial paper
Bank CD
Repo rate
Treasury bond with 5 years left to maturity
Treasury bond with 4 months left to maturity
2.
H
Discount rate, Simple Interest Rate
Simple interest rate will be higher than the discount rate
To convert a discount rate to an equivalent simple interest rate (365day basis):
o i = 365d/(360dtsm)
To convert from 365day rate to a 360day rate, or vi
TRUE, FALSE, or UNCERTAIN
1 The yield on a bond is basically its simple interest rate.
False. The assumptions necessary for interpreting the discount rate as a simple interest rate (assuming we dont
have zero coupons!) are that (1) the security will be h
(2)Show the payoff pattern you would create if you sold a put and call at the same exercise
price. Explain. Under what circumstances would you expect someone to do this?
Ashortstraddleisaneutraloptionsstrategythatinvolvethesimultaneoussellingofaput
andcal
Summer 2012
1 and 2. (double weight) An option on a stock has an exercise price exactly equal to its current
price. Compare two strategies: (a) buy a naked call on the stock; (b) buy the stock and buy a put
on it (having the exercise price equal to its cu
Queens College
Department of Economics
BUS 351 Thurston
Midterm Spring 2013
April 15, 2013
1.
Select one. If all investors were indifferent to risk, the yield curve (a) would always be flat; (b) would
be flat on the average; (c) would normally be upwards
A recent article in the NYT (Jan 11, 2012) elaborates on
this point:
Wall Streets core function is to perform a sort of financial
alchemy, an incredibly complicated method of giving a lot
of people what they want. Investors with extra cash want
constant a
Queens College
Department of Economics
Business 351
Summer 2012
Final Examination
Professor Thurston
1 and 2. (double weight) An option on a stock has an exercise price exactly equal to its current
price. Compare two strategies: (a) buy a naked call on th
A normal distribution has the
probability of each value of x as an
exponential function of the form y
(the probability)= constant times e
raised to the power (1/2)(x)2/2,
where is the mean, and is the
standard deviation.
A numerical example is where =
I. TO SHOW THAT ON A CALL OPTION HAVING THREE DIFFERENT STRIKE PRICES
AND THE MIDDLE STRIKE PRICE MIDWAY BETWEEN THE HIGHEST AND LOWEST, 2
TIMES THE PREMIUM ON THE MIDDLE CALL WILL BE LESS THAN THE SUM OF
THE PREMIUMS OF THE CALLS HAVING HIGHEST AND LOWES
PutCall Arbitrage
If
Vc +E < Vp +S(t)
Vc +E < Vp +S(t)
Buy portfolio A (LHS) and short portfolio B
(RHS)
Shorting B means writing (selling) the put at E
and shorting the security.
Outcome
Blue is the long position: buy Treasury and call
BUY PORT. A
(ALRE
Some notes on arbitrage and putcall parity
Introduction: in the last of last week, we discussed the putcall parity condition. The result was
that since two portfolios have the same possible outcomes, they should cost the same.
Therefore the relationship
Queens College
Department of Economics
BUS 351 Thurston
Midterm Fall 2014 answer sketch
1 hour 15 min. These questions can be answered briefly. But make sure you do it clearly.
1.
Fill in the rest of the table correctly (use the blank sheets, not this she
Too Big to Regulate  NYTimes.com
1 of 2
http:/www.nytimes.com/2014/08/10/opinion/sunday/toobigtoregulate.
http:/nyti.ms/1lKJtZx
SUNDAYREVIEW

EDITORIAL
Too Big to Regulate
By THE EDITORIAL BOARD
AUG. 9, 2014
If the DoddFrank financial reform law was
Financial Markets,
instruments, money markets,
equity, and more
Class 1
1
Recommended: Bull by the Horns (Free Press, 2012), by Sheila Bair, former FDIC
Chairman.
Jennifer Taub, Other Peoples Money
Anat Admati, Stanford
The Banks New Clothes: Whats Wrong
Financial Markets
Class 2
Note: Please read for next class:
Foreign Affairs article by Allen Greenspan,
Never Saw it Coming
The theory of interest
rate determination by
The determination of interest rates in the shortrun
means of savings and
investment (
Queens College
Department of Economics
Business 351
Fall 2009
Final Examination
Professor Thurston
1. Show the payoff pattern you would create if you sold a put and call at the same exercise
price. Explain. Under what circumstances would you expect someon