EC3333 Financial Economics I
Tutorial 9
(Answers)
1. For this problem, we will use the two-state framework to obtain the value of the put option
with one period to maturity, given that S0 = 100; X = 110; u = 1.30; d = 0.80; r = 1.10 .
a. Construct a perfe

ANSWERS
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30.
D
D
D
D
A
E
A
B
D
C
B
A
B
D
D
D
B
A
C
B
D
D
B
D
CorD(allowingforambiguityinincreasing/decreasingrate)
A
C
D
C
B

About the mid-term test and Tutorial 5 for Week 7
1. The midterm will be a one-hour (closed book) paper comprising entirely multiple-choice type
questions. Please be at the exam venue MPSH1 Section A by 2pm.
What does the mid-term cover? All materials del

W k9
Week
Yield Curve and Interest Rate Risk
Readings: Textbook, Chapters15 (1&2 only) & 16
Forward interest rates (or forward rates) are interest
rates on loans where the date of commitment is
different from the date of loan
E.g., if we make a commitmen

Week 11
Options and Futures Markets
Readings: Textbook, Chapters18 and 19
Extend BOPM to continuous time
Given T (term to maturity). Divide T into n equal intervals,
and invoke the BOPM for n periods. Let n so that the
length of each period 0
L u=e
Let
d

Week 10
Options
Readings: Textbook, Chapters 17 & 18
Derivative is a security
essentially a contract between two (counter) parties
whose value is dependent upon or derived from one or more
p
p
underlying securities or assets
common underlying assets in

Week 12
Futures Swaps and Risk Management
Futures,
Readings: Textbook, Chapters19 and 20
Cost-of-Carry
Cost of Carr Relationship
Net
Carry Cost
F0 = S0 + CC CR
where F0 = Futures price
p
S0 = Spot or Cash price
CC = Carry costs
CR = Carry return
y
Suppo

Semester 2, 2012-13
EC3333 Financial Economics I
B. T. Lim
The Capital Asset Pricing Model
1. The Market Risk Premium
Given the assumptions, we know that every investor will hold a common portfolio of all
the N risky assets in the market (called the One F

Week
W k8
Bond Prices and Yields
Readings: Textbook, Chapter 14
Bonds are debt instruments
B
Borrower (I
(Issuer) and C di
) d Creditor (h ld )
(holder)
a contract between the issuer and the bondholder (called
the indenture) that specifies
par (or face

Week 6
Capital Asset Pricing Model
Readings: Textbook Chapter 9
Textbook,
(pages 308-329)
It is the equilibrium model that underlies all
modern financial theory
Derived using mean-variance optimizaton
with simplified assumptions
H. Markowitz, Sharpe, Lint

W k5
Week
Equilibrium in Capital Markets
Readings: Textbook, Chapters 7 and 9
Given: N risky assets with rates of returns
R1 , R2 , , RN
with expected values
E ( R1 ) = 1 , E ( R2 ) = 2 , , E ( RN ) = N
and variances and covariances
Var ( R1 ) = 11 , Var

Lecture 3
Portfolio Returns and Capital
p
Allocation
Textbook,
Textbook Chapter 6
IVESTMENTS | BODIE, KANE, MARCUS
2
Definitions
An asset is an investment instrument that
g
can be bought and sold
A portfolio is a collection of assets
it lf an asset
its

Lecture 4
Portfolio Returns and Risk
Textbook, Chapter 7
2
Variance and Covariance
Mutual dependence between two or more
random variables
Let R1 and R2 be two random variables. The
covariance of R1 and R2 is
Cov ( R1 , R2 ) = E ( R1 E ( R1 ) ) ( R2 E (

Lecture 2
Risk and Return
Textbook, Chapter 6
6-2
Rate of Return
Single-Period: Holding Period Return
( P1 P0 ) + D1
R=
P0
where P0 = beginning price of asset
P = ending price of asset
1
D1 = income during the period
6-3
Rate of Return
Holding-Period Re

Lecture 1
The Investment Environment
Textbook, Chapter 1
1-2
Introduction
What is Finance all about?
deciding
g among
g investment alternatives
One principal theme:
Valuation
V l ti
Law of One Price
Relative value
1-3
Real Assets Versus Financial As

Simulation Project Group 4
George Lam A0113860M
Ong Wei Jee A0111089L
Yong Kang
A0111230J
Joshua Che A0111379H
Quang Nguyen A0101878B
Minh Nguyen A0116660L
Project proposal:
Statement: Checkout system design for Clementi Mall NTUC Supermarket.
Motivation: