Semester I 2013; MAL732: Practice Problems
1. If you wish to accumulate Rs 140,000 in 10 years, how much must you deposit today in an account
that pays an annual interest rate of 8%?
(A: Rs 64847)
2. At what annual interest rate must Rs 137,000 be investe

Semester I, 2013; MAL732: Practice Problems Sheet 3
Binomial Model and Black-Scholes Model
Answers
1. Let the current stock price be 120 and there are only two possibilities of its change: go up by 25%
with probability 70% or down by 20%. Assume the risk

MAL 732: Financial Mathematics
Problem Sheet 5: Portfolio Optimization
1. Suppose there are three nancial market scenarios = cfw_w1 , w2 , w3 with dierent probabilities of occurrence. Consider the following table showing the returns on two dierent stocks

Semester I, 2013: MAL732
Practice Problems Sheet 6: CAPM and SML
1. You owns two risky assets, both of which plot on the security market line. Asset A has an expected return of 12% and beta
of 0.8. Asset B has an expected return of 18% and a beta of 1.4.

Semester I, 2013: MAL732
Practice Problems Sheet 4: The Greeks
1. The Black-Scholes price for a certain European call option on stock is Rs 50. The stock is currently trading for
Rs 1000 per share, and it is known that Rs 452 must be borrowed in the repli

Semester I, 2013: MAL732
Practice Problems Sheet 7: Bonds and Interest Rates
1. A 1-year ZCB with face value Rs 100 is currently selling for Rs 85. What is the interest rate after 6 months
if the investment for 6 months in zero coupon bonds gives a contin