Veronesi Ch. 2, Question 2
Compute the price, the yield, and the continuously compounded yield for the
following Treasury bills. For the 1-year Treasury bill also compute the semiannually compounded yield.
(a) 4-week with 3.48% discount (December 12, 2005
Imagine you are the treasurer of a Japanese company exporting electronic equipment to
the United States. Discuss how you would design a foreign exchange hedging strategy and
the arguments you would use to sell the strategy to your fellow executi
Suppose that put options on a stock with strike prices $30 and $35 cost $4 and $7,
respectively. How can the options be used to create (a) a bull spread and (b) a bear
spread? Construct a table that shows the profit and payoff for both spreads.
Suppose that a European call option to buy a share for $100.00 costs $5.00 and is held until
maturity. Under what circumstances will the holder of the option make a profit? Under
what circumstances will the option be exercised? Draw a diagram ill
Veronesi Ch. 4, Question 2
It is May 15, 2000 and an investor is planning to invest $100 million in one of the two
portfolios below. The investor's main concern is the change in interest rates that might
affect the short-term value of the portfolio. Compu
A 1-year long frward contract on a non-dividend paying stock is entered into when the
stock price is $40 and the risk-free rate of interest is 10% per annum with continuous
(a) What are the forward price and the initial value of the
Owen and Sarah's pre-tax income is $100,000. Suppose that state income tax is 10% of
taxable state income and that federal income tax is 10/19 of taxable federal income.
Taxable federal income is $100,000 less state income tax. Taxable state i