CHAPTER 10
Properties of Stock Options
Practice Questions
Problem 10.9.
What is a lower bound for the price of a six-month call option on a non-dividend-paying stock
when the stock price is $80, the strike price is $75, and the risk-free interest rate is
CHAPTER 15
Options on Stock Indices and Currencies
Practice Questions
Problem 15.9.
A foreign currency is currently worth $1.50. The domestic and foreign risk-free interest rates
are 5% and 9%, respectively. Calculate a lower bound for the value of a six-
CHAPTER 16
Futures Options
Practice Questions
Problem 16.8.
Suppose you buy a put option contract on October gold futures with a strike price of $1,800
per ounce. Each contract is for the delivery of 100 ounces. What happens if you exercise
when the Octob
CHAPTER 12
Introduction to Binomial Trees
Practice Questions
Problem 12.9.
A stock price is currently $50. It is known that at the end of two months it will be either $53
or $48. The risk-free interest rate is 10% per annum with continuous compounding. Wh
CHAPTER 13
Valuing Stock Options: The Black-Scholes-Merton Model
Practice Questions
Problem 13.13.
What is the price of a European call option on a non-dividend-paying stock when the stock
price is $52, the strike price is $50, the risk-free interest rate
CHAPTER 11
Trading Strategies Involving Options
Practice Questions
Problem 11.10.
Suppose that put options on a stock with strike prices $30 and $35 cost $4 and $7,
respectively. How can the options be used to create (a) a bull spread and (b) a bear sprea
CHAPTER 7
Swaps
Practice Questions
Problem 7.9.
Companies X and Y have been offered the following rates per annum on a $5 million 10-year
investment:
Company X
Company Y
Fixed Rate
8.0%
8.8%
Floating Rate
LIBOR
LIBOR
Company X requires a fixed-rate invest
CHAPTER 9
Mechanics of Options Markets
Practice Questions
Problem 9.8.
A corporate treasurer is designing a hedging program involving foreign currency options.
What are the pros and cons of using (a) the NASDAQ OMX and (b) the over-the-counter
market for
CHAPTER 4
Interest Rates
Practice Questions
Problem 4.8.
The cash prices of six-month and one-year Treasury bills are 94.0 and 89.0. A 1.5-year bond that will pay
coupons of $4 every six months currently sells for $94.84. A two-year bond that will pay cou
CHAPTER 5
Determination of Forward and Futures Prices
Practice Questions
Problem 5.9.
A one-year long forward contract on a non-dividend-paying stock is entered into when the
stock price is $40 and the risk-free rate of interest is 10% per annum with cont
CHAPTER 6
Interest Rate Futures
Practice Questions
Problem 6.8.
The price of a 90-day Treasury bill is quoted as 10.00. What continuously compounded
return (on an actual/365 basis) does an investor earn on the Treasury bill for the 90-day
period?
The cash
CHAPTER 3
Hedging Strategies Using Futures
Practice Questions
Problem 3.12.
Suppose that in Example 3.4 the company decides to use a hedge ratio of 0.8. How does the
decision affect the way in which the hedge is implemented and the result?
If the hedge ra
CHAPTER 2
Mechanics of Futures Markets
Practice Questions
Problem 2.11.
A trader buys two July futures contracts on frozen orange juice. Each contract is for the
delivery of 15,000 pounds. The current futures price is 160 cents per pound, the initial
marg