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1. (a) The nominal deposit rate is 12% per annum with continuous compounding. How much interest will be paid each quarter on a $10,000 deposit
1. (a) The nominal deposit rate is 12% per annum with continuous compounding. How much interest will be paid each quarter on a $10,000 deposit if the interest will be actually paid quarterly? [8 marks] (b) The price of a vanilla European call option maturing in one year on a non- dividend paying stock is $4 higher than its put counterpart. The stock price is $1 higher than the strike price of the option now. The effective interest rate is 10% per annum. Determine stock price. [8 marks] (c) In a market, the zero curve with continuous compounding is given by R+ = 5t+ sin(t). Determine the instantaneous forward rate (short rate) with continuous compounding at time t. [8 marks]
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