Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

A $2,000 face value bond has a 6% coupon and pays interest annually. The bond matures in 2 years and the annual Market interest is

A $2,000 face value bond has a 6% coupon and pays interest annually. The bond matures in 2 years and the annual Market interest is 7%. What is the Macaulay duration?

1.89734 YEARS

1.94289 YEARS

1.24368 YEARS

2.17843 YEARS

NONE OF THE ABOVE



 

You sell a call option on Tesla stock with an exercise price of $250. The option expires after 1 month. Assume that the option premium is $25. What is the profit on this option is the stock price is $310 at expiration

-$60

-$35

$35

$60

None of the above

 


You buy a Put option on Tesla stock with an exercise price of $270 the option expires after one month. Assume the option premium is $30. What is the payoff on this option if the stock price is $200 at expiration?

-$70

-$40

$70

$40

None of the above



The current price of American Airlines stock is $39. In the next year, this stock price can either go up by $12 or go down by $8. The stock pays no dividends. The one year risk-free interest rate is 6% and will remain constant.  Calculate the risk-neutral probabilities of stock going up for this year .
 

A  0.271

B 0.375

C 0.483

D 0.517

E 0.625

 

 


Suppose today is February 12, 2022, and your farm produces corn. You expect to harvest and sell 250,000 bushels of corn in May 2022. You would like to lock in your price today because you are concerned that corn prices might go down between now and May. To hedge your risk exposure, should you hold a long position or a short position in the futures contracts? How many contracts do you need? Note that each corn futures contract is for 5,000 bushels. Assume that the sensitivity of the corn prices to the S&P500 index is 0.3. 


 a) Long 25 contracts

b) short 25 contracts

c) Long 50 contracts

d) short 50 contracts

e) None of the above


 

 

Assume the following: 

The current price per share of the stock is $23.

The price of a two-year call with the strike price of X is currently $4. 

The price of a two-year put with the strike price of X is currently $5. 

 The stock does not pay a dividend. 

The risk-free rate is 2% per year. 

 

Using the put-call parity, what is the strike price of the put? In other words, find X. 

a) $24.97

b) $29.00

c) $30.45

d) $31.97

e) $35.93

f) None of the above.


 

 


Suppose you manage a $2 million portfolio. Assume that the expected return of your portfolio is 18% per year,E(rm)=11% per year, the risk-free rate is 1% per year, and S0 = 3,200. You are worried that the market might fall after one year. How many one-year S&P E-Mini futures contracts do you need to hedge your portfolio? To hedge your risk exposure, should you hold a long position or a short position in the futures contracts? Note that the S&P E-Mini contract multiplier is $50. Recall the CAPM equation is: Choose the closest number.

a) Short 13 contracts

b) Short 22 contracts

c) Long 22 contracts

d) Short 13 contracts

e) None of the above

 



Step by Step Solution

There are 3 Steps involved in it

Step: 1

The detailed answer for the above question is provided below Lets go through each of the questions 1 ... blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Introduction to Operations Research

Authors: Frederick S. Hillier, Gerald J. Lieberman

10th edition

978-0072535105, 72535105, 978-1259162985

More Books

Students also viewed these Finance questions

Question

Does Dyson have a business portfolio? Explain. P+96

Answered: 1 week ago

Question

4. How does light reset the biological clock?

Answered: 1 week ago

Question

21. How does L-dopa relieve the symptoms of Parkinsons disease?

Answered: 1 week ago