1
2
3
27
27
5
Bid price The prices at which investors are willing to buy shares.
Ask price The prices at which current shareowners are willing to sell their shares.
Bid-ask spread The difference be
FM 2555A
Assignment No. 3
Due Date: 12:30, 01 December 2016
BGS 165
NOTE: Only solutions to 5 problems marked with (see pages 7-8) are required for
submission. The other problems are practice exercise
Equations
t
PV =
r=
1
1
PV = C
= C Art
t
r
r (1 + r )
1
PV = FVt
t
(1 + r )
t
C 1+ g
PV =
1
r g 1 + r
FVt = PV (1 + r )
C
r
Income1 + P1 P0
P0
PV =
NPV = C 0 +
C
rg
Ct
C1
C2
.
+
+
+
1 +
Last Name: _
First Name: _
Student Number: _
FM 2555A Fall 2016 Assignment #3 Marking Scheme
N.B.: This sheet should be attached as a cover page of your Assignment 3 paper or
risk a deduction of 2 pts
Introduction
The recent news about Volkswagen AGs (VW) violation of emission control laws by cheating
the tests led to the 40 percent drop in share price and the $33 billion drop in market value withi
FM2557 Chapter 3-2
Todays plan
Return students paper of Test 1. Note that the
request for a remarking must be made within one
week of the date when the result is announced;
afterward the result will
FM2557 Chapter 2-5
Textbook coverage: Sections 2.4 -2.6
Todays Learning objectives
Finish chapter 2
Discuss more on long v.s. short
Discuss how to compare different investment
strategies
Introdu
Friends: S02E21
Monica wanted to buy a stock
MONICA: Hey, I went up.
RACHEL: What?
MONICA: My stock, MEG, it went up 2 points. Hey guys, do
you realize that if I had invested my $127 in myself yest
Solution to selected questions in Chapter 5
Ex5.2, 5.10 (even), ex5.12- 5.15, and ex5.17
Question 5.2
a) The owner of the stock is entitled to receive dividends. As we will get the stock only
in one y
Solutions to the Selected Questions in Chapter 8
Question 8.2
a) We first solve for the present value of the cost per three barrels, based on the forward
prices:
+
$20
1.06
+
$21
(1.065) 2
$22
(1.07)3
Solutions to Selected Questions in Chapter 7
Question 7.3
Using the bond valuation formulas (7.1), (7.3), (7.6) we obtain the following yields and
prices:
Zero-Coupon
Bond Yield
Zero-Coupon
Bond Price
Solutions to Problem Set 3
3.2 Let ST be the spot price of the S&R Index at T . The payo of the short index and short put
position is
ST
if ST > 1000
f (ST ) = ST (1000 ST )+ =
.
1000 if ST 1000
The c
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