Adapted from McDonald 14.3
A non-dividend-paying stock has a current price of $50 and volatility of 30%, and
the risk-free rate is 4% per annum. Use Monte Carlo simulation to find the value of
a six-month Asian average price call with a strike price of $5
Hull 12.12 and 12.13
A stock price is currently $50. Over each of the next two 3-month periods it is expected
to go up by 6% or down by 5%. The risk free interest rate is 5% per annum with
continuous compounding.
(a) What is the value of a 6-month Europea
Hull 9.9
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
Back 3.7 and 3.8 (modified)
Consider a three-month, at-the-money European call option on a stock
with a current price of $50 and volatility of 30%. Suppose that the riskfree rate is 3% per year, continuously compounded.
a) From the Black-Scholes, model, w
Veronesi Ch. 2, Question 5
Consider a 10-year coupon bond paying 6% coupon rate.
(a) What is its price if its yield to maturity is 6%? What if it is 5% or 7%?
(b) Compute the price of the coupon bond for yields ranging between 1% and 15%.
Plot the resulti
Hull 5.9
A 1-year long forward 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
compounding.
(a) What are the forward price and the initial value of the
Veronesi Ch. 2, Question 3
You are given the following data on different rates with the same maturity (1.5 years),
but quoted on a different basis and different compounding frequencies:
Continuously compounded rate: 2.00% annualized rate
Continuously co
Consider an 8-month European put option on a Treasury bond that currently has 14.25
years to maturity. The current cash bond price is $910, the exercise price is $900, and the
volatility for the bond price is 10% per annum. A coupon of $35 will be paid by
McDonald 26.4
Consider a firm with assets worth $100 million. The firm's rquired return on
assets is 15%, and the volatility of assets is 40%. The firm pays no dividends,
and the risk free rate is 8%. Suppose the firm has issued a single zero coupon
bond
Hull 2.11
A trader buys two July futures contracts on orange juice. Each contract is for the delivery
of 15,000 pounds. The current futures price is 160 cents per pound, the initial margin is
$6,000 per contract, and the maintenance margin is $4,500 per c
Hull 1.11
A cattle farmer expects to have 120,000 pounds of live cattle to sell in three months. The
live-cattle futures contract on the Chicago Mercantile Exchange is for the delivery of
40,000 pounds of cattle. How can the farmer use the contract for he
Hull 5.9
A 1-year long forward 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
compounding.
(a) What are the forward price and the initial value of the