MA270 Lab Report 1 - Annuities; Bonds
Student Number:
Name:
Lab:
Winter 2016
1. [5 marks] Suppose that you purchased a house for $475000 on January 1st, 2016. The mortgage on the home requires monthly
payments of $4400 for 10 years, a balloon payment at t

MA270 - Winter 2016 - Problems on Forwards
1. One ounce of gold currently costs $1,200, and storing gold costs nothing. The interest rate
is 2.5% per annum, compounded continuously. Blake believes the price of gold is going
to go up, and takes a long posi

MA270 - Winter 2016 - Problems on Bonds
1. Bell Canada has an outstanding bond that matures in exactly 4.5 years and pays a semiannual coupon of 3% on a face value of $100. Sketch the pricing function P () for this
bond. Be sure to label important points,

MA270 - Winter 2016 - Problems on Diversification
1. The data below corresponds to the historical performance of the Canadian bond market
and Canadian stock market.
1
0.042
1
0.044
2
0.077
2
0.139
-0.08
Let (w) and 2 (w) denote the mean and variance of my

MA270 - Winter 2016 - Problems on Duration
1. I am due to receive $100 per year over the next five years. Complete the following table,
where wi denotes the weight of the ith cash flow that I am due to receive.
Discount Rate
1% c.a.
12% c.a.
w1
w2
w3
w4
w

MA270 - Winter 2016 - Problems on Options
1. Goldman Sachs (GS) stock is currently trading at $192.96. Three-month calls struck at
$195 are currently trading at $6.15. Consider the following three portfolios - A consists
one share and zero calls, B consis

MA270 - Winter 2016 - Answers to Selected Forwards Problems
1. (d) $215.13.
2. Must exceed $381.38.
3. (a) $42.17, (b) $39.14, (c) forward price in one month would be $39.50, contract value is
$0.35, (d) forward price is $38.29, contract value is $0.82.
5

MA270 - Winter 2016 - Answers to Selected Problems on Diversification
1. (b) 7.3%, (c) points are (.077, .139), (.0409, .0458) and (.044, .042), (d) should look like a
segment of a hyperbola passing through the given points, should include part of the upp

MA270 - Winter 2015 - Answers to Selected Problems on Bonds
1. Graph needs to (i) be decreasing and convex, (ii) have the horizontal axis as a horizontal asymptote, (iii) have a vertical intercept at
(0, 113.56) and (iv) pass through the point (.015, 100)

MA270 Lab Report 6 - Forward and Option Contracts
Student Number:
Name:
Winter 2016
1. [8 marks] On August 10th, 2014, gold was trading at $1309.25 per ounce. Suppose that, on this date, you entered
the short position on a 19-month forward contract for an

MA270 Lab Report 3 - Duration; Utility Functions
Name:
Student Number:
Lab:
Winter 2016
1. [8 marks] Consider the following cash ows for bonds A and B each with 1 year until maturity and a face value of $20,000.
Bond A
Bond B
ti (years)
CFiA (dollars)
P V

MA270 Lab Report 4 - Portfolio Management I
Student Number:
Name:
Lab:
Winter 2016
Suppose an investors portfolio contains stocks of the following two Canadian companies:
i) Air Canada - an airline company denoted by AC on the Toronto Stock Exchange (TSX)

MA270 Lab Report 2 - Finding Yield; Yield Curves
Student Number:
Name:
Lab:
Winter 2016
1. [12 marks] A 25-year, $50 000 was purchased on January 25th, 2016. It is redeemable at par and pays quarterly coupons at
an annual rate of 3:5% compounded quarterly

MA270 Lab Report 4 Notes
Portfolios of Two Assets:
Previously we discussed the amount of "wealth" that should be invested in a single asset. Now, we will look at a
"portfolio" consisting of two assets and the percentages (weights) w1 = w and w2 = 1 w of a

MA270 Lab Report 6 Notes
Forward Contracts:
An agreement to buy or sell an asset for a fixed price (called the forward price F ) on a fixed future date (called the
delivery or maturity date T ).
Notes:
A forward contract is an agreement between two partie

MA270 - Winter 2016 - Problems on Utility
1. Let u(w) = 1 ew .
(a) For what values of is u a reasonable utility function?
(b) Show that the coefficient of risk aversion for this utility function is .
2. Show that lim1
w1 1
1
= ln(w), for any w > 0.
3. Let