A company's investments earn ZARONIA minus $0\mathrm{.}5\%.$

Table Swap quotes made by market maker $($percent per annum$)$

Use the Table to explain how the company can use the quoted rates to convert the

investments to a two$-$year and seven$-$year fixed$-$rate investment, respectively.

By entering into a two$-$year swap where it receives

$\%$ and pays ZARONIA, the

company earns

$\%$ for two years. Enter to $2$ decimal places $($e$.$g$.2\mathrm{.}34)$

By entering into a seven$-$year swap where it receives

$\%$ and pays ZARONIA, the

company earns

$\%$ for seven years. Enter to $2$ decimal places $($e$.$g$.2\mathrm{.}34)$

The company also borrowed money at $5\mathrm{.}1\%$ for five years and wishes to convert this

borrowing to a floating$-$rate liability by making use of the swap quotes in the table.

It enters into a five$-$year swap where it receives

$\%$ and pays Libor. Enter to $2$

decimal places $($e$.$g$.2\mathrm{.}34)$ The current price of a stock is $$105,$ and three$-$month European call options with a strike

price of $$107$ currently sell for $$5\mathrm{.}20.$ An investor who feels that the price of the stock will

increase is trying to decide between buying $100$ shares and buying $1,500$ call options. Both

strategies involve an investment of $$10,500.$

If the share price increases to $$120,$ the gain to the investor if he bought call options will be $

Enter dollar value $($e$.$g$.1000)$

If the share price increases to $$120,$ the gain to the investor if he bought shares will be $

Enter dollar value $($e$.$g$.1000)$

It is therefore advisable for the investor to buy

to benefit from an increase

in share price.

For both the strategies to be equally profitable the stock price should increase to $

Enter dollar value and cents $($e$.$g$.1000\mathrm{.}11)$ The volatility of an asset is $2\%$ per day. What is the standard deviation of the percentage

price change in sixteen days? Percentage change in price is

$\%.$

What extra information do you need to calculate the covariance if you know the correlation

between two variables?

standard deviation

Ocovariance between

standard deviation on

Ocorrelation

of the two variables

the asset and the

only one of the

between the two

market

variables

variables The current price of a stock is $$105,$ and three$-$month European call options with a strike

price of $$107$ currently sell for $$5\mathrm{.}20.$ An investor who feels that the price of the stock will

increase is trying to decide between buying $100$ shares and buying $1,500$ call options. Both

strategies involve an investment of $$10,500.$

If the share price increases to $$120,$ the gain to the investor if he bought call options will be $

Enter dollar value $($e$.$g$.1000)$

If the share price increases to $$120,$ the gain to the investor if he bought shares will be $

Enter dollar value $($e$.$g$.1000)$

It is therefore advisable for the investor to buy

to benefit from an increase

in share price.

For both the strategies to be equally profitable the stock price should increase to $

Enter dollar value and cents $($e$.$g$.1000\mathrm{.}11)$