Case Problem 4.1
A. Assuming that investments A and B are equally risky and using the 4% discount
rate, apply the present value technique to assess the acceptability of each investment
and to determine the preferred investment. Explain your findings.
Year
1
Textbook Case Problems Week 3
Roger Martinez
FIN/402
JULY 31, 2017
Yashi Sharma
2
Textbook Case Problems Week 3
Case Problem 6.1 Sara Decides to Take the Plunge
A. What do you think of the idea of Sara keeping substantial sums of money in
savings accoun
1
Textbook Case Problems Week2
Roger Martinez
FIN/402
July 24, 2017
Yashi Sharma
2
Textbook Case Problems Week2
4.1 Coatess Decision
A. Assuming that investments A and B are equally risky and using the 4% discount
rate, apply the present value technique t
4.1a Bonds are debt securities issues by corporations or governments. The issuer
pays interest payments and a principal payment on specific dates to the holder.
Treasury bonds are issued by the U.S. government and thus are the least risky bonds.
The gover
4)
a.
b.
c.
The B bonds were issued in 1994, are thinly traded, and no valid market
quotation is available. Thus, we cannot calculate the required return with
the given data. Also in 1994 the company experienced financial problems
that led to downgrades,
Problem 2-2
Ri =
Rf +
10.40%
Problem 2-5
Probability rm
0.3
0.4
0.3
(RM) *
0.04
bi
0.08
rj
0.15
0.09
0.18
0.2
0.05
0.12
a.
r^m =
r^j =
r^ = Sum of Pi*ri
13.50%
11.60%
b.
market
Deviation From Expected Return
1.50%
-4.50%
4.50%
stock j
c.
market
stock j
Sq
2-1
a.
Risk is defined in Websters as a hazard; a peril; exposure to loss or injury. Risk
refers to the chance that some unfavorable event will occur. An assets stand-alone risk is
the risk an investor would face if he or she held only this one asset. A l
1
Asset Classes Paper
Nick Manthey
Fin/402
July 25, 2016
Russell Bellemare
2
Asset Classes
Investors in our present market have specific needs and requirements for their
investments. Depending on the type of investor, whether conservative or a high-risk t
Running head: CAPITAL MARKETS AND INVESTMENTS BANKING
PROCESS
Capital Markets and Investments Banking Process Paper
Amber Marino
FIN/402
March 31, 2014
Joann Frantino
1
CAPITAL MARKETS AND
INVESTMENTS BANKING PROCESS
2
Capital Markets and Investments Bank
Running head: FINAL EXAM FIN 402
1
Final Exam FIN 402
Amber Marino
FIN/402
April 28, 2014
Joann Frantino
FINAL EXAM FIN 402
2
Final Exam FIN 402
Final Exam due Day 7, Monday, April 28.
Q1. Explain what we mean when we say that T-bonds are risk-free. Is it
CHAPTER 31
Interest Rate Derivatives: Models of the Short Rate
Practice Questions
Problem 31.1.
What is the difference between an equilibrium model and a no-arbitrage model?
Equilibrium models usually start with assumptions about economic variables and de
CHAPTER 32
HJM, LMM, and Multiple Zero Curves
Practice Questions
Problem 32.1.
Explain the difference between a Markov and a non-Markov model of the short rate.
In a Markov model the expected change and volatility of the short rate at time t depend
only o
CHAPTER 34
Energy and Commodity Derivatives
Practice Questions
Problem 34.1.
What is meant by HDD and CDD?
A days HDD is max(0 65 A) and a days CDD is max(0 A 65) where A is the
average of the highest and lowest temperature during the day at a specified w
CHAPTER 33
Swaps Revisited
Practice Questions
Problem 33.1.
Calculate all the fixed cash flows and their exact timing for the swap in Business Snapshot
33.1. Assume that the day count conventions are applied using target payment dates rather
than actual p
CHAPTER 30
Convexity, Timing, and Quanto Adjustments
Practice Questions
Problem 30.1.
Explain how you would value a derivative that pays off 100R in five years where R is
the one-year interest rate (annually compounded) observed in four years. What differ
CHAPTER 28
Martingales and Measures
Practice Questions
Problem 28.1.
How is the market price of risk defined for a variable that is not the price of an investment asset?
The market price of risk for a variable that is not the price of an investment asset
CHAPTER 29
Interest Rate Derivatives: The Standard Market Models
Practice Questions
Problem 29.1.
A company caps three-month LIBOR at 10% per annum. The principal amount is $20 million.
On a reset date, three-month LIBOR is 12% per annum. What payment wou
CHAPTER 24
Credit Risk
Practice Questions
Problem 24.1.
The spread between the yield on a three-year corporate bond and the yield on a similar
risk-free bond is 50 basis points. The recovery rate is 30%. Estimate the average hazard rate
per year over the
CHAPTER 26
Exotic Options
Practice Questions
Problem 26.1.
Explain the difference between a forward start option and a chooser option.
A forward start option is an option that is paid for now but will start at some time in the
future. The strike price is
CHAPTER 25
Credit Derivatives
Practice Questions
Problem 25.1.
Explain the difference between a regular credit default swap and a binary credit default swap.
Both provide insurance against a particular company defaulting during a period of time. In a
cred
CHAPTER 21
Basic Numerical Procedures
Practice Questions
Problem 21.1.
Which of the following can be estimated for an American option by constructing a single
binomial tree: delta, gamma, vega, theta, rho?
Delta, gamma, and theta can be determined from a
CHAPTER 22
Value at Risk
Practice Questions
Problem 22.1.
Consider a position consisting of a $100,000 investment in asset A and a $100,000
investment in asset B. Assume that the daily volatilities of both assets are 1% and that the
coefficient of correla
CHAPTER 23
Estimating Volatilities and Correlations
Practice Questions
Problem 23.1.
Explain the exponentially weighted moving average (EWMA) model for estimating volatility
from historical data.
Define ui as (Si Si 1 ) Si 1 , where Si is value of a marke
CHAPTER 20
Volatility Smiles
Practice Questions
Problem 20.1.
What volatility smile is likely to be observed when
(a) Both tails of the stock price distribution are less heavy than those of the lognormal
distribution?
(b) The right tail is heavier, and th
CHAPTER 19
The Greek Letters
Practice Questions
Problem 19.1.
Explain how a stop-loss trading rule can be implemented for the writer of an
out-of-the-money call option. Why does it provide a relatively poor hedge?
Suppose the strike price is 10.00. The op
CHAPTER 18
Futures Options
Practice Questions
Problem 18.1.
Explain the difference between a call option on yen and a call option on yen futures.
A call option on yen gives the holder the right to buy yen in the spot market at an exchange
rate equal to th
CHAPTER 17
Options on Stock Indices and Currencies
Practice Questions
Problem 17.1.
A portfolio is currently worth $10 million and has a beta of 1.0. An index is currently
standing at 800. Explain how a put option on the index with a strike of 700 can be
CHAPTER 14
Wiener Processes and Its Lemma
Practice Questions
Problem 14.1.
What would it mean to assert that the temperature at a certain place follows a Markov
process? Do you think that temperatures do, in fact, follow a Markov process?
Imagine that you