Finance 551
Homework#1: Solutions
1. The forward price of corn for delivery in 2 months is $4.00 per bushel, while the spot
price is $3.82. The 3-mth interest rate is 5% per annum compounded continuously.
a) Is there an arbitrage opportunity if corn can b
MBA551 (2012)
Homework #2: Solutions
1.
If firm value can either rise or fall by 30% each period (u = 1.30, d = 0.70) with
probability q and (1-q) respectively, in a 1-period model, calculate the time 0
value of a zero-coupon bond with face value of 100 (
Finance 551
Duration and Swaps Practice Problems: Solutions
1. A 5-year bond with a yield of 11% (continuously compounded) pays an 8% coupon at the
end of each year.
a) What is the bonds price?
B = 8e-0.11(1) + 8e-0.11(2) + 8e-0.11(3) + 8e-0.11(4) + 108e-
Finance 551
Practice Problems for Final Exam: Solutions
1. Assume there exists a tranche of a CMO with a total principle value of
$120,000,000. This tranche is divided into $60,000,000 of floaters and
$60,000,000 of inverse floaters. The pool is at a fixe
Finance 551
Quiz 1
March 20, 2012
Time Limit: 30 Minutes
Total Points: 100
*Note: Please read each question carefully. Be sure to answer each question in its
entirety. You may use the formula sheet included with the exam, but no other notes
or supporting
Finance 551
Quiz 2
April 24, 2012
Time Limit: 30 Minutes
Total Points: 100
*Note: Please read each question carefully. Be sure to answer each question in its
entirety. You may use the formula sheet included with the exam, but no other notes
or supporting
Finance 551
Practice Problems: Solutions
1. The forward price of wheat for delivery in 3 months is $3.90 per bushel, while the spot
price is $3.60. The 3-mth interest rate is 8% per annum compounded continuously.
a) Is there an arbitrage opportunity if wh
Practice Problems on Synthetic Swaps & Credit Risk
1. Re-work the example from the GM case that I went through in class, but use 10%
strike rates instead of 9%.
GM would issue fixed at 7.625%, then they would swap it into floating by paying LIBOR
and rece
Finance 551
Quiz 2 Prep Problems
1.
Assume there exists a tranche of a CMO with a total principle value of
$120,000,000. This tranche is divided into $100,000,000 of floaters and
$20,000,000 of inverse floaters. The pool is at a fixed rate of 9%.
a) If th