1) On November 3, 2016, you purchase a $10,000 T-note that matures on August 15, 2020. The coupon rate on the T-note is 8.750% and the current price quoted on the board is 128.3125%. Settlement occurs two days later, November 5, 2016. The last coupon payment occurred Aug 15, 2016 (82 days before the settlement), and the next coupon payment will be paid on February 15, 2017 (102 days from settlement). Calculate the accrued interest due to the seller from the buyer at settlement.

2) A fully amortizing mortgage loan is made for $250,000 at 4.5 percent interest for 30 years. Payments are to be made monthly. Calculate: a. Monthly payment b. Total outstanding loan balance if the loan is repaid at the end of year 15. c. What would the breakdown of interest and principal be in the first, second, third and last month of the mortgage loan term?

3) A 5/1 hybrid ARM is made for $400,000 at 5% with a 30 year maturity. A 5/1 hybrid ARM is a FRM for the first five years, and becomes an ARM afterward.

a. Assuming that fixed payments are to be made monthly for five years and that the loan is fully amortizing, what would be the monthly payments? What will be the loan balance after five years?

b. What would new payments be beginning in year 6 if the interest rate on the mortgage fell to 4% and the loan continued be fully amortizing?

c. In (a), what would monthly payments be during year 1 if they were interest-only? What would payments be beginning in year 6 if interest rates fell to 4% and the loan became fully amortizing? (An interest-only mortgage is a mortgage contract for which monthly payments are set to be equal to interest payments only without amortization.)

4) Tree Row Bank wishes to take a position in Treasury bond futures contracts, which currently have a quote of 95-040. Tree Row thinks interest rates will go up over the period of investment. Assume $100 par.

a. Should the bank go long or short on the futures contracts?

b. Calculate the net profit to Tree Row Bank if the price of the futures contracts decreases to 94-280.

c. Calculate the net profit to Tree Row Bank if the price of the futures contracts increases to 95- 210.

5) Suppose an investor has a $1 million long position in T-bond futures. The investor's broker requires a maintenance margin of 4 percent, which is the amount currently in the investor's account. You can assume (for this question only) that the initial margin requirement is the same as the maintenance margin requirement.

a. Suppose also that the value of the futures contract drop by $50,000 to $950,000. How much will the investor be required to pay his broker to maintain his margin? What will be the value of the investor' account balance (assuming no excess) as a result of the price drop?

b. If the futures contract drop in value the next day by another $40,000, to $910,000, how much will the investor be required to pay his broker to maintain his margin? What will be the value of the investor's account balance (assuming no excess) as a result of the price drop?

c. If, on day 3, the futures contract increases in value by $65,000, to $975,000, how much will the investor be able to withdraw from his account to maintain his margin? What will be the value of the investor's account balance (assuming no excess) as a result of the price drop?

d. Suppose, instead, an investor has a $1 million short position in T-bond future and that the value of the futures contract increases by $50,000 to $1,050,000. How much will the investor be required to pay his broker to maintain his margin? What will be the value of the investor's account balance (assuming no excess) as a result of the price drop?

6. You have taken a long position in a call option on IBM common stock. The option ha an exercise price of $176 and IBM's stock currently trades at $180. The option premium is $5 per contract. Option premiums in the questions are per share, not per contract (which is 100 shares).

a. How much of the option premium is due to intrinsic value versus time value?

b. What is your net profit on the option if IBM's stock price increases to $190 at expiration of the option and you exercise the option?

c. What is your net profit if IBM's stock price decreases to $170?

7. You have purchased a put option on Pfizer common stock. The option has an exercise price of $27 and Pfizer's stock currently trades at $29. The option premium is $0.50 per contract. Option premiums in the questions are per share, not per contract (which is 100 shares).

a. What is your net profit on the option if Pfizer's stock price does not change over the life of the option?

b. What is your net profit on the option if Pfizer's stock price falls to $23 and you exercise the option?