Ken Seng Tan
ACTSC 371
Fall 2014
1
Chapter Summary
Objective: To provide a general overview of the
investment environment
I.
A Short History of Investing
II. The Economic System and Investment
III. Individuals and Financial Intermediaries
IV. Recent Trend

CHAPTER 20
FUTURES, FORWARDS, AND SWAP MARKETS
1. There is little hedging or speculative demand for cement futures, since cement
prices are fairly stable and predictable. The trading activity necessary to support
the futures market would not materialize.

p0 + S0 = c0 + E/(1+ r)T
put
Stock
call
Strike
rf rate
Exp
Trades
Long call
Investing PV(E)
0.50
20.00
5.36
15.00
5%
0.5years
Short put
Short stock
Net
LS
20.50
RS
20.00
European
Non-dividend paying stock
Long PV(E)=investing
Shorting= borrowing; shorting

1. Bond D has the least interest rate risk as it has the highest coupon rate and shortest maturity
Bond C has the highest interest rate risk as it has the lowest coupon 81 longest maturity
2. Recall the definition of Fisher 81 Weil duration and convexity:

Glossary of Terms Used in Class
This is meant to demystify some of the jargon that I use in class. Obviously some of the terms I use will
be left off the list inadvertently. If that happens, just send me an email or ask me in class and I will
include that

University of Waterloo
ACTSC 371: Introduction to Investments
FALL 2015
Instructor:
Ken Seng Tan, M3 3016, ext. 36688, [email protected]
Class Times:
Lecture: 10:00-11:20TTh (MC 4020)
Tutorial: 02:30-03:20F (MC 1085)
Course Webpage:
learn.uwaterloo.ca
Of

CHAPTER 19
OPTION VALUATION
1. Put values also must increase as the volatility of the underlying stock increases.
We see this from the parity relation as follows:
P = C + PV(X) S0 + PV(dividends).
Given a value of S and a risk-free interest rate, if C inc

CHAPTER 18
OPTIONS AND OTHER DERIVATIVES MARKETS:
INTRODUCTION
1. We assume in all cases that the option position is established by buying at the ask
prices.
a. Option price = $3.95; payoff = 14 11 = 3; profit = 3 3.95 = 0.95
b. Option price = $0.52; payo

Ken Seng Tan
ACTSC 371
Fall 2015
Chapter Summary
Objective: To describe the workings of futures
markets and the mechanics of trading in these
markets.
20.1 THE FUTURES CONTRACT
20.2 MECHANICS OF TRADING IN FUTURES MARKETS
20.3 FUTURES MARKETS STRATEGI

A
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
B
C
D
E
Semiannual
Coupons
Settlement date
Maturity date
Annual coupon rate
Bond price
Redemption value (% of face value)
Coupon payments per year
Yield to maturity (decimal)
F
G
H
I
J
Annual coupons
7/31/2012
7

Holding Period Immunization Example:
Yield to Maturity
Coupon Rate
Years to Maturity
Par Value
Holding Period
Duration
Market Price
11.580%
14.000%
7.0
$1,000.00
5.0
5.000251
$1,111.929
If YTM increases 200 basis points:
Yield to Maturity
13.580%
Future V

Table 14.3
A
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
B
C
1
2
3
4
Time until
Payment
(Years)
0.5
1.0
1.5
2.0
1
2
3
4
0.5
1.0
1.5
2.0
Period
A. 8% coupon bond
D
E
Cash flow
40
40
40
1040
Sum:
B. Zero-coupon bond
Sum:
Semiannual int rate:
0
0
0
1000
F
P

A
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
B
C
Year
Inputs
beta
mkt_prem
rf
k_equity
plowback
roe
term_gwth
D
0.95
0.08
0.02
0.0960
0.75
0.1
0.075
Value line
forecasts of
annual dividends
Transitional period
with slowing dividend
growth
Begin

CHAPTER13
THETERMSTRUCTUREOFINTERESTRATES
1. In general, the forward rate can be viewed as the sum of the markets
expectation of the future short rate plus a potential risk or liquidity premium.
According to the expectations theory of the term structure o

UNIVERSITY OF
WATE R LOO
University of Waterloo
Term Test #1
ACTSC 371 — Introduction to Investments
Instructor: Brent Matheson
Date: Wednesday June 10, 2015
Time: 4:30 pm to 5:20 pm
Duration: 50 minutes
Number of Pages: 6 (including the cover page)
Aids:

Question 8 [11 marks] You want to construct a Short Call Ladder option strategy. To set up
this strategy you 1) go short an in-the-money call option, 2) go long an at-the-money call
option and 3) go long an out-of-the-money call option. You will create th

ACTSC 371 Final Exam Review
A
L TEXer:
W. Kong
Chapters 1 to 2
The 3 steps of Corporate Finance: (1) In what long-lived assets should the rm invest? (2) How can the rm raise cash for
required capital expenditure? (3) How should short-term operating cash

Assignment 1: Actsc 371: Winter 2015
Due Wednesday February 4th at 5:00 PM
The assignments will be collected at 5:00 PM and a solution posted. Any assignments submitted
after this time will get a grade of zero.
Submit the assignments to the dropboxes as i

MAIN POINTS AND LEARNINGS
PLEASE NOTE: With an assignment like this, there will be several answers that are correct. All the
acceptable answers will be close, but do not be troubled if the answer you got was not exactly the same
as I put here. In this ass

Assignment 3: Actsc 371 Winter 2015
Due April 3, 2015 at noon in the dropboxes across from the math tutorial centre
PREAMBLE
You are examining the performance of Apple Inc and trying to find the intrinsic value using a two stage
DDM. The Excel sheet that

CHAPTER 1 : THE INVESTMENT ENVIRONMENT
1. a. No. The increase in price did not add to the productive capacity of the
economy.
b. Yes, the value of the equity held in these assets has doubled. [NOTE from
BM. I dont necessarily agree with this. There I a di

CHAPTER14
MANAGINGBONDPORTFOLIOS
1. The percentage bond price change will be
y = .005 = .0327 or a 3.27 percent decline.
2. Computation of duration:
a. YTM = 6%
(1)
(2)
(3)
TimeUntil
Payment(years)
Payment Payment
Discountedat6%
WeightofEach Column(1)
Pa