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1. Determine whether a $100,000, 3-month T-Bill selling at $97,645 or a 10%, semi-annual coupon bond selling at par has the greater effective annual return.

2. Consider a newly issued 20-year, zero-coupon bond with a $1,000 face value and 8% required return. Determine the imputed interest income for the bond in its first, second, and last year of life, assuming no change in its required return.

3. When the yield curve is upward sloping, why would the final coupon on a zero-coupon stripped U.S. Treasury yield more than a non-stripped Treasury bond with the same maturity?

4. In terms of the liquidity preference and expectations theories of the term structure of interest rates, explain the relationship between forward rates and expected spot (short) rates.

5. The following table contains current prices of zero-coupon bonds. Calculate each bond?s yield to maturity and the forward rates implied by their prices.

Maturity in Years	Price of the Zero
1	943.40
2	898.47
3	847.62
4	792.16

6. A stock is selling for $100.00, and is expected to pay an annual dividend of $2. An at-the-money European-style put option on the stock with a one-year maturity sells for $7.00. Determine the price of a one-year at-the-money call option on the same stock, if the annual interest rate is 5%.

7. The following table contains relevant option data.

Option Quote
	Call	Put
Expiration	Strike	Last	Volume	Open Interest	Last	Volume	Open Interest
Jan	190	4.40	815	5697	1.75	507	2496
Feb	190	6.75	402	2808	3.00	3553	10377
Apr	190	8.85	107	1866	5.20	527	2177
Jul	190	10.95	15	645	8.54	6	1142
Jan	195	0.01	2451	11718	0.70	4090	8862
Feb	195	3.65	1337	11902	5.00	860	3156
Apr	195	5.90	1785	2928	7.30	934	1141
Jul	195	8.45	13	5773	10.85	22	3419

a. Calculate the payoff and profit at expiration for the February 190 calls, if you purchase the option at the stated price and at expiration the stock price is $195.

b. Calculate the payoff and profit at expiration for the February 195 puts, if you purchase the option at the stated price and at expiration the stock price is $195.

Unit 3 [GF540: Investment and Securities Analysis] Unit 3 Assignment: Problem Set Directions: All work submitted must be in your own words and you must show all calculations and/or provide explanations. Any calculations should be done in Excel and pasted into the Word document using the \"Paste Special-Excel Worksheet Object\" feature. This will allow the instructor to double click on your work to see the formulas and calculations used to answer the selected problems. 1. Determine whether a $100,000, 3-month T-Bill selling at $97,645 or a 10%, semi-annual coupon bond selling at par has the greater effective annual return. 2. Consider a newly issued 20-year, zero-coupon bond with a $1,000 face value and 8% required return. Determine the imputed interest income for the bond in its first, second, and last year of life, assuming no change in its required return. 3. When the yield curve is upward sloping, why would the final coupon on a zero-coupon stripped U.S. Treasury yield more than a non-stripped Treasury bond with the same maturity? 4. In terms of the liquidity preference and expectations theories of the term structure of interest rates, explain the relationship between forward rates and expected spot (short) rates. 5. The following table contains current prices of zero-coupon bonds. Calculate each bond's yield to maturity and the forward rates implied by their prices. Maturity in Years 1 943.40 2 898.47 3 847.62 4 6. Price of the Zero 792.16 A stock is selling for $100.00, and is expected to pay an annual dividend of $2. An at-the-money European-style put option on the stock with a one-year maturity sells for $7.00. Determine the price of a one-year at-the-money call option on the same stock, if the annual interest rate is 5%. Unit 3 7. [GF540: Investment and Securities Analysis] The following table contains relevant option data. Option Quote Call Put Expiratio n Strik e Last Volume Open Interest Last Volume Open Interest Jan 190 4.40 815 5697 1.75 507 2496 Feb 190 6.75 402 2808 3.00 3553 10377 Apr 190 8.85 107 1866 5.20 527 2177 Jul 190 10.95 15 645 8.54 6 1142 Jan 195 0.01 2451 11718 0.70 4090 8862 Feb 195 3.65 1337 11902 5.00 860 3156 Apr 195 5.90 1785 2928 7.30 934 1141 Jul 195 8.45 13 5773 10.85 22 3419 a. Calculate the payoff and profit at expiration for the February 190 calls, if you purchase the option at the stated price and at expiration the stock price is $195. b. Calculate the payoff and profit at expiration for the February 195 puts, if you purchase the option at the stated price and at expiration the stock price is $195. Rubric: Criteria for Assignment Grades Maximum Percent Maximum Points Provides correct and complete answers for questions and problems. 40% 32 Clearly shows the reasoning and/or calculations used to arrive at the answer or conclusion. 50% 40 Uses the Excel special paste feature where appropriate. 10% 8 Unit 3 TOTAL [GF540: Investment and Securities Analysis] 100% 80