CHAPTER 5
Determination of Forward and Futures Prices
Practice Questions
Problem 5.1.
Explain what happens when an investor shorts a certain share.
The investors broker borrows the shares from another clients account and sells them in the
usual way. To cl

CHAPTER 7
Swaps
Practice Questions
Problem 7.1.
Companies A and B have been offered the following rates per annum on a $20 million fiveyear loan:
Company A
Company B
Fixed Rate
5.0%
6.4%
Floating Rate
LIBOR+0.1%
LIBOR+0.6%
Company A requires a floating-ra

Chapter 8
Securitization and the Credit Crisis of 2007
Practice Questions
Problem 8.1
What was the role of GNMA (Ginnie Mae) in the mortgage-backed securities market of the
1970s?
GNMA guaranteed qualifying mortgages against default and created securities

CHAPTER 8
Mechanics of Options Markets
N otes for the Instructor
This chapter provides information on how options markets work. 1 usually go through
the chapter fairly quickly leaving students to read the details for themselves. Points 1
spend time on are

CHAPTER 4
Interest Rates
Practice Questions
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 c

CHAPTER 1
Introduction
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 a

CHAPTER 15
Employee Stock Options
Practice Questions
Problem 15.1.
Why was it attractive for companies to grant at-the-money stock options prior to 2005? What
changed in 2005?
Prior to 2005 companies did not have to expense at-the-money options on the inc

CHAPTEIcfw_ 19
Basic Numerical Procedures
1lotes
for the Instructor
Chapter 19 presents the standard numerical procedures used to value derivatives when
analytic results are not avai1 able. These involve binomialjtrinomial trees , Monte Carlo
simulation ,