Assignment 3 - Solution
Question 1
Profit diagram of the different put strategies:
Question 2
XYZ will buy collars, which means that they buy the put and sell the call. The future value of the initial
cost (well call this the net premium) of buying the pu
Assignment 4 - Solution
Question 1
We first solve for the present value of the cost per three barrels, based on the forward prices:
$20
$21
$22
55.3413.
2
1.06 (1.065) (1.07)3
Hence we could spend $55.3413 today to receive 1 barrel in each of the next th
FNCE 445, Quiz #4,
Section #2 Full Name:
1. The prices of the 1-year, 2year, and 3-year dollar-denominated zero
coupon is $09434, $08900, and $08396, respectively. The domestic 1
year, 2-year, and 3-year Euro forward contract costs $09217, $09440,
and $
FNCE 445 Midterm (W2013)
Lecture:
Full Name:
Multiple Choice Problems (4 points each)
1. All of the positions listed will benet from a price increase, except
(a) Short put
(b) Long straddle
(c) Short bull spread
(d) long strangle
2. You short-sell 100 sha
FNCE 445 Exercises (Week #9)
1. Oil forward prices for 1 year, 2 years, and 3 years are 20, 21, and 22.
The 1-year eective annual interest rate is 6%, the two year rate is
6.5%, and the 3-year rate is 7%.
a. What is the 3 year oil swap price?
b. Suppose y
Assignment 2 - Solution
Question 1
Notice that you long a put option and a S&R index. In addition, the payoff from borrowing $980.38 today
is -$ 908.38*(1+0.02) = - $1000.00 (constant payoff function).
Adding three payoffs together, we have the payoff dia
FNCE 445 (Fall 2014) Problem Set #3
Due: October 15, 2014
For problems 1 to 5, consider two rms, XYZ and Teleco. Firm XYZ
mines copper, with xed costs of $0.50/lb and variable costs of $0.40/lb.
Teleco sells the telecommunications equipment and uses coppe
FNCE 445: Exercises (Week 10)
1. The 1000-strike call and put options on the S&R index are $121 and
$110, respectively. The time to maturity of options is six months later.
The current price of the S&R Index is $1000 and the dividend yield is
2%. The risk
FNCE 445 (Fall 2012) Midterm
1
True-False Questions (3 points each)
Answer whether each statement is true or false.
1. During the last 30 years the derivative markets have increased thanks
to the increased value of assets (or market capitalization).
(A) T
FNCE 445 Midterm (W2013)
Lecture:
Full Name:
Multiple Choice Problems (4 points each)
1. All of the positions listed will benet from a price increase, except
(a) Short put
(b) Long straddle
(c) Short bull spread
(d) long strangle
2. You short-sell 100 sha
FNCE 445 (Fall 2014) Problem Set #4
Due: November 12, 2014
For problem 1-4, assume oil forward prices for 1 year, 2 years, and 3
years are 20, 21, and 22. The 1-year eective annual interest rate is 6%, the
two year rate is 6.5%, and the 3-year rate is 7%.
FNCE 445 (Fall 2015) Problem Set #4
Due: November 10, 2015
For problem 1-4, assume oil forward prices for 1 year, 2 years, and 3
years are 20, 21, and 22. The 1-year eective annual interest rate is 6%, the
two year rate is 6.5%, and the 3-year rate is 7%.
Chapter 4
Introduction to Risk Management
Question 4.2
If the forward price were $0.80 instead of $1, we would get the following table:
Copper price in
one year
Total cost
Unhedged
profit
$0.80
$0.90
$1.00
$1.10
$1.20
$0.90
$0.90
$0.90
$0.90
$0.90
$0.10
0
FNCE 445 (Fall 2013) Problem Set #5
Due: November 20, 2013
1. The premium of a 100-strike yen-denominated put on the euro is
8.763. The current exchange rate is 95 yen/euro. What is the strike
of the corresponding euro-denominated yen call, and what is it
FNCE 445 (Fall 2012) Midterm
1
True-False Questions (3 points each)
Answer whether each statement is true or false.
1. During the last 30 years the derivative markets have increased thanks
to the increased value of assets (or market capitalization).
(A) T
FNCE 445 Final Practice Problem Set
Multiple Choice Problems
1. Assume corn forward prices over the next 3 years are 2.25, 2.35, and
2.28, respectively. Eective annual interest rates over the same period are 5.2%, 5.5%, and 5.8%. What is the 2-year swap p
FNCE 445 (Fall 2013) Problem Set #1
Due: September 18, 2013
1. Consider the widget exchange. Suppose that each widget contract has
a market value of $0 and a notional value of $20. There are three
traders A, B, and C. Over one day, the following trades oc
FNCE 445 (Fall 2014)
Assignment #2
Due: October 1, 2014
For problem 1 to 7, we assume the eective 1 year interest rate is 4% and
the S&R 6-month forward price $1020, and the use the following premiums,
if necessary, for S&R options with 6 months to expira
Alaris Royalty Corporation
Financials
TSX: AD
Buy Recommendation
Business Description
Alaris Royalty Corporation (TSX: AD) is head-quartered in Calgary,
Alberta, where it provides capital to private businesses using an
innovative structure. Unlike traditi
FNCE 445 (Fall 2015) Problem Set #1
Due: September 24, 2015
1. Consider the widget exchange. Suppose that each widget contract has
a market value of $0 and a notional value of $20. There are three
traders A, B, and C. Over one day, the following trades oc
FNCE 445 (Fall 2015) Problem Set #3
Due: October 15, 2015
For problems 1 to 5, consider two rms, XYZ and Teleco. Firm XYZ
mines copper, with xed costs of $0.50/lb and variable costs of $0.40/lb.
Teleco sells the telecommunications equipment and uses coppe
Assignment 4 - Solution
Question 1
We first solve for the present value of the cost per three barrels, based on the forward prices:
$20
$21
$22
55.3413.
2
1.06 (1.065) (1.07)3
Hence we could spend $55.3413 today to receive 1 barrel in each of the next th
FNCE 445 Midterm Practice Problem Set 1
1
True-False Questions (3 points each)
Answer whether each statement is true or false.
1. During the last 30 years the derivative markets have increased thanks
to the increased value of assets (or market capitalizat
Chapter 11
The Black-Scholes Formula
Question 11.2
N
Call
Put
8
9
10
11
12
50
3.464
3.361
3.454
3.348
3.446
3.3918
1.718
1.642
1.711
1.629
1.705
1.5997
The observed values are slowly converging towards the Black-Scholes values of the example. Note that
th
Alaris Royalty Corporation
Financials
TSX: AD
Buy Recommendation
Business Description
Alaris Royalty Corporation (TSX: AD) is head-quartered in Calgary,
Alberta, where it provides capital to private businesses using an
innovative structure. Unlike traditi
FNCE 445 (Fall 2015) Problem Set #2
Due: October 6, 2015
For problem 1 to 7, we assume the eective 1 year interest rate is 4% and
the S&R 6-month forward price $1020, and the use the following premiums,
if necessary, for S&R options with 6 months to expir
FNCE 445 (Fall 2015) Problem Set #5
Due: November 24, 2015
1. A stock currently sells for $32.00. A 6-month call option with a strike
of $35.00 has a premium of $2.27. Assuming 4% continuously compounded risk-free rate and a 6% continuously compounded div
Assignment 5
Question 1
This problem is an application of put-call-parity for a stock with a continuous dividend. We have:
P(35, 0.5) C (35, 0.5) e T S0 erT 35
P(35, 0.5) $2.27 e0.06 0.5 32 e0.04 0.5 35 $5.5227.
Question 2
1.
The initial cash flow is:
800
FNCE 445 (Fall 2015) Problem Set #6
Due: December 3, 2015
Consider one-period binomial trees (Q1 and Q2):
1. Let S = 100, K = 105, r = 8%, T = 0.5 and = 0. Let u = 1.3 and
d = 0.8.
(a) What are , B, and the premium for a European call?
(b) What are , B, a