Problem Set 6: FUTURES: SOLUTIONS
1. A Wheat farmer expects to harvest 60,000 bushels of wheat in September. In order to pay for
the seed and equipment, the farmer had to draw $150,000 from his savings ac
PS 1: Bonds
1. You have been told that the yield on a particular 10yr bond is 6.5%. This bond pays an 8.5% coupon with
semi-annual compounding. What will its price be? [5 points]
= 4.25/0.0325 [1 - 1.0325 -20] + 100/(1
Problem Set 7: OPTIONS: SOLUTIONS
A Swiss company purchased machine tools from a US engineering firm. The delivery date is in
June, and the purchase price of the machine tools is SFR 5million. The
D = 0.5(A+C)
Between A and B, the investor should only choose B, since
B has both a higher expected return and a lower volatility.
Between B and
Problem Set 3: Equity Markets SOLUTIONS
Replicate in a spreadsheet the sample DCF calculation from class (the Ice Cream company), using the
PS3_Q1.xls spreadsheet provided. [20 marks]
Problem Set 4: Risk, Return and Diversification - SOLUTIONS
Suppose a risk-averse investor can choose from the following three investments.
Expected Return (E[ri])
Problem Set 2: Bond Markets: SOLUTIONS
The 5.75% coupon, 10-yr US Treasury bond is priced at 100.83.
(i) What is its yield? [5 points]
You can back this out using the price-yield formula and solvin