FNCE 717 Practice 10
Question 1
If a share in XYZ currently trades for $50 and the risk free interest rate is 5% (continuously
compounded), what is the 3-month forward price?
Question 2
The quoted price of a 6-month forward contract on ABC shares is $28.
FNCE 717 Practice 2
Problem Set 7: hedging; volatility skews; real options
Question 1
Part (i)
As discussed in class, it is common for the volatility of a stock to increase after a price
decrease. We can use a modified binomial tree to model this idea.
Co
FNCE 717 Practice 3
Question 1
You hold an American call option on shares in the firm ABC. The current (March) share
price is $14. The option expires in December (i.e., in 9 months), and has a strike of $12.
ABC have announced the following dividend polic
FNCE 717 Practice 4
Question 1:
This question involves the Iowa Electronic Markets (see
http:/www.biz.uiowa.edu/iem/markets/), and in particular the 2004 Democratic National
Convention Market. In this market traders were able to buy and sell options linke
FNCE 717 Practice 5
Question 1
After careful research, you have concluded that Alcoa shares are currently overvalued, and will
perform badly between now and the end of the year. You short-sell $100, 000 worth of Alcoa
shares, and plan to close out this sh
FNCE 717 Practice 6
Question 1
Assume there are no transactions costs. A share in DEF currently trades at $35, the risk
free interest rate is 3% (continuously compounded), and DEF will pay a $4 dividend in one
month. What is the 4-month forward price?
Que
FNCE 717 Practice 7
Part 1, Question 1
A pure discount bond costs $726, 150 today and pays $1, 000, 000 in 4 years.
(a) What is the continuously compounded interest rate?
(b) What is the effective annual rate?
Question 2
Suppose you invest $100 today and
FNCE 717 Practice 8
Question 1
Choose a stock market index for which futures are traded on an exchange. Assume
that dividends are paid continuously over the life of the futures contract. What is
the theoretical price and the actual market price of the fut
FNCE 717 Practice 9
Question 1
Assume there are no transactions costs. A share in ABC currently trades at $65.
The risk free interest rate is 1% (continuously compounded) and the dividend yield
is 5% (continuously compounded). What is the 3-month forward
FNCE 717 Practice
Question 1
You wish to price a European and American put on a stock which currently trades for $100. The
puts both expire in nine months, and have a strike of $100. The nine-month interest rate
(continuously compounded) is 5%. The estima