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
Financial Derivatives
FNCE 206/717
R. Elul
Derivatives - Summer 2017
1
Session 1
Introduction
Instructor: Ronel Elul
Email: [email protected]
Other contact information on syllabus
Office Hours: most days after class + extra hours before
exams
TA
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 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.
WELLS FARGO CONVERTIBLE BONDS
PGDM 2009-2011 Financial Markets and Instruments TERM IV Case Analysis on Wells Fargo
Convertible Bonds Submitted to: Prof. Kulbir Singh Section B2CD1 Submitted by Mikhail
Parmar -2009129 Nikeeta Kataruka-2009146 Oormila Ram
Value at RiskNew Approacl1es to
Risk Maltagemel1t
M
Katerina Simons
Economist, Federal Reserve Bank of
Boston. The author thanks Peter Fortune, Richard Kopcke, and James
O'Brien for helpful comments and
Timothy Lin for able research assistance.
anaging ri
JOURNAL OF
AND QUANTITATIVE
QUANTITATIVE ANALYSIS
ANALYSIS
AND
JOURNAL
OF FINANCIAL
FINANCIAL
VOL
21, NO
VOL 21,
NO 4,
DECEMBER1986
1986
4, DECEMBER
Financial
Innovation:
The
Last
Twenty Years
Years and
Financial
Innovation:
The
Last Twenty
and the
the
Ne
Times Mirror PEPS Case
Financial Derivatives
Please read the PEPS case, which can be found on study.net
Why is Time Mirror interested in the PEPS? What are the alternatives what
are their drawbacks?
Please graph the final PEPS payoff as a function of Nets
PRICES
Year 1
Year 2
Year 3
Year 4
Year 5
Wholesale price
$80
$70
$60
$50
$40
REVENUES
Gross revenues
SALES TARGETS
Year 1
Year 2
Year 3
Year 4
Year 5
Total Sales
Predicted
YEAR 0
YEAR 1
Predicted
120000
90000
45000
22500
11250
288750
0
FIXED COSTS
Feasib
BINOMIAL TREES
STEP 1: Create the binomial price tree: u=e^(t)
d = 1/u
STEP 2: Find Option value at each final node. At each final node of the tree i.e.
at expiration of the option the option value is simply its intrinsic, or exercise,
value: Max [ (S-K),
FNCE 206/717
Group 2
Terron
Graham
Trent
Miller
Ryan Snyder
Kristy Wiehe
Case #1:
Fuel Hedging at Southwest Airlines
1) As a public, for-profit corporation, Southwest wants to generate profits for its
shareholders. It can do this more effectively by hedgi
FNCE 206/717
Group 2
Terron
Graham
Trent
Miller
Ryan Snyder
Kristy Wiehe
Case #1:
Fuel Hedging at Southwest Airlines
1) As a public, for-profit corporation, Southwest wants to generate profits for its
shareholders. It can do this more effectively by hedgi
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 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 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 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 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
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
FNCE 206/717
Group 2
Terron Graham
Trent Miller
Ryan Snyder
Kristy Wiehe
Case #3:
Wells Fargo Notes
1) The prospectus dated March 31, 2003 describes senior unsecured notes with an issue
date of July 1, 2004 and a maturity date of January 20, 2010, to be i
FNCE 206/717
Group 2
Terron Graham
Trent Miller
Ryan Snyder
Kristy Wiehe
Case #2:
Times Mirror PEPS
(1) PEPS allows Times Mirror
to sell Payof
its shares of Netscape stock, which are restricted from sale
PEPS
on the public market and thus are not fully li
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