Assignment 3; due Thursday April 14 (beginning of class)
The first three questions are about the General Mills case, which is in the
course packet (see the syllabus).
1. Carefully draw the payout at expiration (to General Mills) of the
clawback as a funct

Assignment 1; due Thursday, March 24 (beginning of class)
1. For Natural Resource Partners LP (NRP), what were the adjustments to the terms of a $1strike March 2016 call option that resulted from the 1-10 reverse stock split? What about the
$1.5-strike Ma

Class Notes
Chapter 18: Option Greeks
Prof. Mark Schroder
Outline
I. Arbitrage strategies
II. Hedging Strategies
III. Delta Hedging
IV. Portfolio Delta
V. Option Gamma
VI. Some Delta Neutral Hedges
VII. Option Theta
VIII. Relationship Among Delta, Gamma,

Class Notes
Chapter 14 The Black-Scholes-Merton Model
Prof. Mark Schroder
Outline
I. Stock Price Process
II. Estimating Volatility From Historical Data
III. The Black-Scholes Formula
IV. Implied Volatility
V. Dividend Adjustments in the European Formula
V

Class Notes
Prof. Mark Schroder
Chapter 12: Binomial Model
Outline
I. A Simple One-Period Binomial Model
II. The General One-Period Binomial Model
III. Risk-Neutral Valuation
IV. Properties of the Binomial Model
V. Original Example Revisited
VI. Volatilit

Class Notes
Chapter 9
Prof. Mark Schroder
Outline
I. Effects of variables on option prices
II. Low exercise price options (LEPOs)
III. Upper bound on option prices (no dividends)
IV. Lower bound on a call price (no dividends)
V. Lower bound on a put price

Class Notes
Corporate Securities
Prof. Mark Schroder
Outline
I. Defaultable Discount Bonds
II. Conflicts of Interest Between Shareholders and Bondholders
III. Convertible Bonds
A) Valuing a Convertible as a Derivative on the Firms Assets
B) Binomial Conve

FI 855 Final Exam
8 questions, 100 points total. Show all your work
Your name:
1. (10 points) You hold 1,000 call options on XYZ each expiring in May. The
delta of each contract is 0.6.
a) How many shares of stock should you buy or sell to create a portfo

Assignment 3; due Thur. 2/11
1. 60 futures contracts are used to hedge an exposure to the price of silver. Each
futures contract has a unit size of 5,000 ounces. At the time the hedge is closed out,
the basis is $0.20 per ounce. What is the effect of the

Assignment 4, due Tuesday 2/23
1. Companies X and Y have been offered the following rates per annum on a $10 million five-year
loan:
Fixed Rate Floating Rate
Company X
8.0%
LIBOR
Company Y
10.0%
LIBOR + 1.0%
a) Company X requires a floating-rate loan; com

Assignment 1; due Thursday, March 24 (beginning of class)
1. For Natural Resource Partners LP (NRP), what were the adjustments to the terms of a $1strike March 2016 call option that resulted from the 1-10 reverse stock split? What about the
$1.5-strike Ma

Assignment 4; due Tues April 26 (beginning of class)
The first three questions are about the Boston Chicken case.
1. Why are yields lower for convertibles than straight debt? All other things being equal, should a
callable (or redeemable) convertible trad

Assignment 1: Due Thursday 1/21 (at the beginning of class)
1. A company enters into a short futures contract to sell 5,000 bushels of wheat for $4.50 per bushel.
The initial margin is $3,000 and the maintenance margin is $2,000. What price change would l

FI 852 Spring 2016 Final Exam
Show all your work! 100 points total.
Your name: (2 points):
1. A company enters into one long futures contract to buy (I mistakenly wrote sell) 50,000 pounds
of cotton for 70 cents per pound at the close of trading. The init

Assignment 2; due Tues April 5 (beginning of class)
1. Find the arbitrage opportunity in the following set of European put prices (all on the same stock
and all expiring in June). Just describe the strategy (you dont have to construct the payoff table).
S

Assignment 4, due Tuesday 2/23
1. Companies X and Y have been offered the following rates per annum on a $10 million five-year
loan:
Fixed Rate Floating Rate
Company X
8.0%
LIBOR
Company Y
10.0%
LIBOR + 1.0%
a) Company X requires a floating-rate loan; com