Question 1 An S&P 500 index linked CD matures in 3 years, with the face value the same as the current S&P 500 index price, $ 1350. Upon its maturity, the investor will be paid back the face value, plus 80% of the gain on the S&P 500 index. When the CD matures in 3 years and the S&P index goes up to $1500, who would be the total payoff from the CD? $1350 $1470 $1500 $1600 Question 2 An S&P 500 index linked CD matures in 3 years, with the face value the same as the current S&P 500 index price, $ 1350. Upon its maturity, the investor will be paid back the face value, plus 80% of the gain on the S&P 500 index. When the CD matures in 3 years and the S&P index goes down to $1300, who would be the total payoff from the CD? $1350 $1470 $1500 $1600 Question 3 An S&P 500 index linked CD matures in 3 years, with the face value the same as the current S&P 500 index price, $ 1350. Upon its maturity, the investor will be paid back the face value, plus 80% of the gain on the S&P 500 index. The S&P 500 continuous dividend yield is 1.5% and continuously compounded risk-free rate is 6%. The S&P 500 volatility is 25%. What is the fair value of this CD? 1290.60 1366.46 1510.22 1589.15 Question 4 An S&P 500 index linked CD matures in 3 years, with the face value the same as the current S&P 500 index price, $ 1350. Upon its maturity, the investor will be paid back the face value, plus 80% of the gain on the S&P 500 index. The S&P 500 continuous dividend yield is 1.5% and continuously compounded risk-free rate is 6%. The S&P 500 volatility is 25%. What is the Black-Scholes price of the embedded option in this CD? 238.85 247.96 278.15 298.56 Question 5 Which of the following is/are true about the equity-linked CD? I. The equity-linked CD has a fixed return regardless of the stock market return. II. The equity-linked CD can be viewed as a zero-coupon bond plus an embedded call option. III. The value of equity-linked CD can be determined according to the Modigliani-Miller Theorem I only I and II only II and III only all of above Question 6 Which of the following is NOT true regarding the Modigliani-Miller Theorem? Modigliani-Miller Theorem was first established in the research on financial engineering Modigliani-Miller Theorem is built on no-arbitrage argument Modigliani-Miller Theorem states that financing decision doesn't affect firm value in a perfect market Modigliani-Miller Theorem is the foundation in pricing complex financial products