FM473B Finance I
Problem Set 10 for Class 10 (Forwards, Futures and Swaps)
1. Calculate convenience yield for magnesium scrap from the following information.
Spot price: $2550 per ton; futures price: $2408 per ton for a one-year contract;
interest rate: 1

FM473B Finance I
Problem Set 8 for Class 8 (Put and Call Options)
1. The following table lists some prices of options on common stocks. The stated interest
rate is 10 percent a year, and the interest is paid monthly. Can you spot any
mispricing? What coul

FM473 Finance I
Home Assignment for Class 1
1. Mr. Smith has an income of $40,000 this year and $60,000 next year. He can invest in a project
that costs $30,000 this year, which generates an income of $36,000 next year. The market interest
rate is 10%. Wh

FM473B Finance I
Problem Set 2 for Class 2 (How to Calculate Present Value)
1. As winner of a breakfast cereal competition, you can choose one of the following prizes:
a. $100,000 now.
b. $180,000 at the end of five years.
c. $11,400 a year forever, start

FM473B Finance I
Problem Set 3 for Class 3 (Valuing Bonds)
1. Assume that spot rates are as follows:
Maturity
1
2
3
4
Spot Rate
5%
5.5%
6%
6.3%
Compute the prices and YTMs of the following bonds:
a) A zero-coupon bond with 3 years to maturity.
b) A bond w

FM473B Finance I
Problem Set 4 for Class 4 (Portfolio Immunization and Valuation of Stocks)
1. Consider a company that currently plows back 30% of its earnings and its ROE is 25%.
The dividend yield on this stock is 5%.
a) Assuming that the company can pl

FM473B Finance I
Problem Set 5 for Class 5 (Risk and Return)
1. You can form a portfolio of two assets, A and B, whose returns have the following
characteristics:
Stock
A
B
Expected Return
10%
15%
Standard Deviation
20%
40%
Correlation
0.5
If you demand a

FM473B Finance I
Problem Set 6 for Class 6 (Portfolio Choice and CAPM)
1. The Treasury bill rate is 4 percent, and the expected return on the market portfolio is
12 percent. Using the capital asset pricing model:
a) Draw a security market line. What is th