MGT 3084 Midterm 2 Name: _
Make sure you read the questions carefully.
c + Ke -rT = p + S0
fu f d Su Sd
p e d u d
rT
= [ p u + (1 p )d ]erT
Please return the exam to me.
1. A security giving yo
Year
Mobile Phone Industry
Car Industry
0
-1000
R
15%
Vo
K
T
r
sigma
BLS price
3794.9101141
2000
2
3.50%
30%
1951.7038995
NPV
$
1,453.58
1
100
2
100
-2000
3
100
1000
4
100
1000
5
100
1000
6
100
1000
7
Assume that the stock follows a binomial model as follows:
t=0
t=1
26
t=2
30
35
31
28
25
23
If you put $100 in the cash account, w
t=0
t=1
1
t=2
1.1
1.1
1.15
1.15
1.2
1.2
Find today's price of call op
SOLUTIONS TO HOMEWORK 1
1. If F is the forward price and S is the stock price today then
F = S exp[ rT ]
where r = 0.05 and T = 0.25 years. Therefore,
F = 100 exp[0.05 * 0.25] = 100 exp[0.0125]
After
SOLUTIONS TO HOMEWORK 2
1. If p is the price of the European put option, we know that
p max( X exp(r (T t ) S ,0)
Therefore,
p max(65 exp(0.1 * 2 / 12) 58,0)
= 65 exp(0.1 / 12) 58
since 65 exp(0.1 / 1
SOLUTIONS TO HOMEWORK 3
1. a) Let the riskless hedge consist of 1 call option and y shares of the stock. Then,
we have
Downtick : Value = 0 + 25*y
Uptick : Value = 15 + 75*y
Since the portfolio is ris
SOLUTIONS TO HOMEWORK 4 (due on April 4, 2002)
1. The volatility of a stock is 40% per annum . What is the standard deviation of the
proportional price change in one trading day ?
The standard deviati
SOLUTIONS TO MIDTERM 1
1.
a) If Rc is the continuously compounded interest rate , then
Rc = 4 ln(1 + Rm / 4)
= 4 ln(1 + 0.05 / 4) = 4 ln(1 + 0.0125)
b)If F is the forward price , then
F = S exp( Rc T
MGT 3084: MID-TERM 2 (10/23/2002)
1. You may use sheets containing any formulae you might need
2. Please show all your working. Its not enough just to write down the answers
and there will be lots of
MGT 3084 Midterm 2 Name: _
Make sure you read the questions carefully.
c + Ke -rT = p + S0
fu f d Su Sd
p e d u d
rT
= [ p u + (1 p )d ]erT
Please return the exam to me.
1. A security giving yo
Legal Forms of Business Organization -Sole Proprietorship -Partnership -Corporation -Limited Liability Company (LLC) Variation of Basic Organizational Alternatives -Sole Proprietorship -General Partne