IEOR 221 - Spring 2016
Homework 11
Due 04/29/2016
1. A stock price is currently S0 = $25. It is known that at the end of two months it
will be either ST = $23 or ST = $27. The risk-free interest rate is an APR of 10%
compounded bimonthly. What is the valu
IEOR 221 - Spring 2016
Assignment 2
Due 02/05/2016
1. When Marilyn Monroe died, ex-husband Joe DiMaggio vowed to place fresh owers on
her grave every Sunday as long as he lived. A bunch of fresh owers that the former
baseball player thought appropriate fo
IEOR 221 - Spring 2016
Homework 4
Due 02/19/2015
1. Find the price and duration of a 10-year, 8% bond that is trading at a yield of 10%
(APR). (This bond has semi-annual payments) Face value is $1000.
2. Consider the four bonds having annual payments as s
IEOR 221 - Spring 2016
Homework 5
Due 02/26/2015
1. Consider a two-year spot rate of 5% and a five-year spot rate of 6%. What is the
forward rate for a loan starting in two years and maturing three years later?
2. Suppose that today a six-year spot rate i
IEOR 221 - Spring 2016
Homework 7
Due 03/29/2016
1. Assume that CAPM holds, i.e. ri = r0 + i (m r0 ), where i =
im
2 .
m
Your goal is to create a portfolio of stocks X, Y, and the risk-free asset. The beta of
the portfolio is P = 0.70. X has a beta of 1.5
IEOR 221 - Spring 2016
Homework 6
Due 03/08/2015
1. The expected returns and variances (of returns) for three assets are:
ASSET RETURN VARIANCE
1
0.10
0.04
2
0.15
0.09
3
0.17
0.25
The correlations between the returns are 12 = 0.20, 13 = 0.50, 23 = 0.30. N
IEOR 221 - Spring 2016
Homework 10
Due 04/22/2016
1. The current stock price is $80 and the stock pays no dividend. Each month, the stock
price is either going up by 3% or going down by 1%. The current interest rate is an
APR of 12% with monthly compoundi
IEOR 221 - Spring 2016
Homework 8
Due 04/08/2016
1. A trader enters into a short forward contract to sell 100, 000 British pounds for US
dollars at an exchange rate of 1.4000 US dollars per pound. How much does the
investor gain or lose if the exchange ra
IEOR 221 - Spring 2016
Assignment 3
Due 02/12/2016
1. Suppose two competing projects have cash flows of the form (A1 , B1 , B1 , ., B1 ) and
(A2 , B2 , B2 , ., B2 ), both with the same length and A1 , A2 , B1 , B2 all positive. Suppose B1 /A1 > B2 /A2 . S
IEOR 221 - Spring 2016
Homework 9
Due 04/15/2016
1. Explain why the arguments leading to put-call-parity for European options cannot be
used to give a similar results for American options.
2. Suppose that put options on a stock with strike prices $30 and
Homework 1
IEOR 221 - SPRING 2016
Due 01/29/2016
1 + EAR = (1 + r)n
if n is number of compounding periods per year and r is the interest rate per period.
1. A well-known insurance company oers a policy known as the Estate Creator Six Pay.
Typically the po