Tutorial 9- Tutorial Solutions
Problem 11.1.
What is meant by a protective put? What position in call options is equivalent to a protective put?
A protective put consists ofa long position in a put option combined with a long position in the underlying
'
Tutorial 11 Solutions
Problem 14.4.
Calculate the price of a three-month European put option on a non-dividend-paying stock
with a strike price of $50 when the current stock price is $50, the risk-free interest rate is
10% per annum, and the volatility is
Tutorial 1 Solution
Practice Questions
Problem 1.1
What is the difference between a long forward position and a short forward position?
When a trader enters into a long forward contract, she is agreeing to buy the underlying asset
for a certain price at a
Tutorial 2 Question
Problem 4.1.
A bank quotes you an interest rate of 14% per annum with quarterly compounding. What is
the equivalent rate with (a) continuous compounding and (b) annual compounding?
Problem 4.4.
An investor receives $1,100 in one year i
Formula references
Please note that it doesnt mean that formulas do not appear in this page will not be tested.
Everything in this subject that we have studied during the semester may be tested.
These formulas again are references only.
r
rc = m ln1 +
m
._.:m moEzo: do 9m w,_mox-mn_._o_mm Elmding 8.533:
n ._.:m w_mnx-mo:o_mm-_<_m:o: 03:0: 3.0.3 30%.
\l H G, ZAQMV I NAN!NHN<A&NV 1% I
9%
38 an
Erma 2A8 n Em oc3c_m:<m amicczo: 330:0: 9n 3m mmsama
303$: EmigEo: m: a
Swim 9h 5m m_mox-mo:o_mm-2_m:o: _<_oQ_
1
Tutorial 4- Tutorial Questions
Problem 3.1.
Under what circumstances are (a) a short hedge and (b) a long hedge appropriate?
Problem 3.2.
Explain what is meant by basis risk when futures contracts are used for hedging?
Problem 3.3.
Explain what is meant
Tutorial 6- Tutorial Solutions
A.
1. C From the swap, this party receives a fixed rate based on the yield curve in Canada and pays a
floating rate based on the yield curve in US.
2. A In the middle of the swap when the creditworthiness of the counterpart
TUTORIAL 10 - QUESTIONS
Binomial Trees
Problem 12.2.
Explain the no-arbitrage and risk-neutral valuation approaches to valuing a European option
using a one-step binomial tree.
Problem 12.9.
A stock price is currently $50. It is known that at the end of t
1
Tutorial 4- Tutorial Solutions
Problem 3.1.
Under what circumstances are (a) a short hedge and (b) a long hedge appropriate?
A short hedge is appropriate when a company owns an asset and expects to sell that asset in the
future. It can also be used when
Tutorial 2 Solution
Problem 4.1.
A bank quotes you an interest rate of 14% per annum with quarterly compounding. What is
the equivalent rate with (a) continuous compounding and (b) annual compounding?
(a) The rate with continuous compounding is
014
4 ln
1
Tutorial 5- Tutorial Solutions
Multiple Choice Questions
1. Which of the following statements is FALSE?
A. In a plain vanilla interest rate swap, fixed rates are traded for variable rates.
B. The default problem is not important in the swap market.
C. I
Tutorial 11 Questions
Problem 14.4.
Calculate the price of a three-month European put option on a non-dividend-paying stock
with a strike price of $50 when the current stock price is $50, the risk-free interest rate is
10% per annum, and the volatility is
Tutorial 1 Questions
Practice Questions from the Textbook.
Problem 1.1
What is the difference between a long forward position and a short forward position?
Problem 1.2.
Explain the difference between hedging, speculation, and arbitrage.
Problem 1.3.
What
1
Tutorial 4- Tutorial Questions
Problem 3.1.
Under what circumstances are (a) a short hedge and (b) a long hedge appropriate?
Problem 3.2.
Explain what is meant by basis risk when futures contracts are used for hedging?
Problem 3.6.
Suppose that the stan
Tutorial 5- Tutorial Questions
Multiple Choice Questions
1. Which of the following statements is FALSE?
A. In a plain vanilla interest rate swap, fixed rates are traded for variable rates.
B. The default problem is not important in the swap market.
C. In
1
Tutorial 4- Tutorial Solutions
Problem 3.1.
Under what circumstances are (a) a short hedge and (b) a long hedge appropriate?
A short hedge is appropriate when a company owns an asset and expects to sell that asset in the
future. It can also be used when
Tutorial 3- Tutorial Questions
Problem 2.1.
Distinguish between the terms open interest and trading volume.
Problem 2.2. An investor takes a short position in two 3-month futures contracts on a stock.
The contract size is 100 shares and the futures price
Tutorial 2 Question
Problem 4.1.
A bank quotes you an interest rate of 14% per annum with quarterly compounding. What is
the equivalent rate with (a) continuous compounding and (b) annual compounding?
Problem 4.4.
An investor receives $1,100 in one year i
1
Tutorial 5- Tutorial Solutions
Multiple Choice Questions
1. Which of the following statements is FALSE?
A. In a plain vanilla interest rate swap, fixed rates are traded for variable rates.
B. The default problem is not important in the swap market.
C. I
Tutorial 3- Tutorial Solutions
Problem 2.1.
Distinguish between the terms open interest and trading volume.
The open interest of a futures contract at a particular time is the total number of long
positions outstanding. (Equivalently, it is the total numb
Tutorial 6 - Tutorial Questions
A. Multiple Choice Questions
1. The current U.S. dollar ($) to Canadian dollar (C$) exchange rate is 0.7. In a $1 million plain
vanilla currency swap, the party that is entering the swap to hedge existing exposure to a C$de
Tutorial 6- Tutorial Solutions
A.
1. C From the swap, this party receives a fixed rate based on the yield curve in Canada and
pays a floating rate based on the yield curve in US.
2. A In the middle of the swap when the creditworthiness of the counterparty
Tutorial 2 Solution
Problem 4.1.
A bank quotes you an interest rate of 14% per annum with quarterly compounding. What is
the equivalent rate with (a) continuous compounding and (b) annual compounding?
(a) The rate with continuous compounding is
014
4 ln 1
Tutorial 5- Tutorial Questions
Multiple Choice Questions
1. Which of the following statements is FALSE?
A. In a plain vanilla interest rate swap, fixed rates are traded for variable rates.
B. The default problem is not important in the swap market.
C. In