Finance 7042 Practice Final Exam
Fall 2012
I UNDERSTAND AND ACCEPT THE UNIVERSITY OF CINCINNATI ACADEMIC
HONOR CODE
Slezaks Solutions
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Signature
INSTRUCTIONS:
(1) Please keep your writing neat and large enough to make it easy to read. You have
four and a
Finance 7042 Practice Final Exam
Fall 2012
I UNDERSTAND AND ACCEPT THE UNIVERSITY OF CINCINNATI ACADEMIC
HONOR CODE
_
Signature
INSTRUCTIONS:
(1) Please keep your writing neat and large enough to make it easy to read. You have
four and a half hours to wri
FIN 7042 Mid-term Exam
Practice
I UNDERSTAND AND ACCEPT THE UC ACADEMIC HONOR CODE
Solutions
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Signature
INSTRUCTIONS:
(1) Please keep your writing large enough to make it easy to read. You have three hours
to write answers to seven problems found on thes
FIN 7042 Mid-term Exam
Fall 2012
I UNDERSTAND AND ACCEPT THE UC ACADEMIC HONOR CODE
Solutions
_
Signature
INSTRUCTIONS:
(1) Please keep your writing large enough to make it easy to read. You have three hours
to write answers to the five multi-part Problem
FIN 7042 Mid-term Exam
Practice
I UNDERSTAND AND ACCEPT THE UC ACADEMIC HONOR CODE
_
Signature
INSTRUCTIONS:
(1) Please keep your writing large enough to make it easy to read. You have three hours
to write answers to seven problems found on these 17 pages
FIN 7042 Derivatives Markets and Securities
Problem Set #10
Due 11/28/2012
Problem 1: For this problem, modify the relevant parts of the Black/Derman/Toy model in the
spreadsheet discussed last class. This spreadsheet is called Fixed Income Derivatives
Ex
FIN 7042
Homework #6 Solutions
Due 10/10/2012
Problem 1:
There is a technique for determining the probability of default for a firm that has debt that is
based on the Black/Scholes option formula. The argument is as follows: Assume the debt is a
zero-coup
FIN 7042
Assignment #9
Due 11/14/2011
Consider the following true evolution of the annualized short-term (i.e., 6-month) rates over the
next year. The first .05 (at the start of the tree) is the current (i.e., t = 0) annualized 6-month
rate; the .06 and t
FIN 7042 Options and Futures
Problem Set #7
Due 10/31/2012
Problem 1:
The consumer products firm Procter and Gamble has an idea to leverage its Mr. Clean detergent
brand by designing and developing a set of Mr. Clean car washes. However, they have noticed
Q1 (Steps 1 and 2 below) and Q2 (Step 3 below)
Short-Rate (i.e. 6-month rate) Tree
0.07
0.06
0.05
0.05
0.04
0.03
t=0
t = .5
t=1
Step 1: Find Prob of up and down now given 1-year bond price:
Price 1-year bond
0.599937 = Prob of up
0.400063 = Prob of down
(
FIN 7042
Homework #4 Solutions
Due 10/03/2012
Problem 1:
Using the Black/Scholes formula, value a European put option on the equity in Amgen
that has the following characteristics.
Expiration:
Current stock price of Amgen:
Strike Price:
Volatility of Amge
FIN 7042
Homework #2
Due 9/12/12
For this problem I want you to go to the Chicago Board of Options Exchange website
(www.cboe.com) and look at the prices of some exchange traded options on a couple of
equities to see if you can find some cases in which th
Finance 7042
Problem Set #3
Due 9/19/2012
Consider a 4-period binomial model of option pricing. Let the current period be t = 0. Prices
change at period t = 1, period t = 2 and period t = 3. Period t = 3 is the period in which the option
expires. At t = 0
Case I:
Put is close to at the money:
Financial Distress
Firm Value
21
Debt Face Value
20
Days to maturity
252
T
1
risk free rate
0.021
sigma
0.3
Firm Value
Debt Face Value
Days to maturity
T
risk free rate
sigma
Change in sigma
21
20
252
1
0.021
0.303
0.
European Call (K = 90)
rf =
u=
d=
Pu =
Pd =
0.001
0.08
0.05
0.392308
0.607692
Underlying 117.5462
Payoff
27.54625
Underlying
X
B
Rep Port value
Risk Neutral
108.8391
1
-89.9101
18.92903
18.92903
Underlying
100.77696
X
1
B
-89.8203
Rep Port value 10.95669