• Use two-state option pricing model to find the value of a call option and the intrinsic value given the following parameters:

T-bills yield:	2.5 pct.
Current stock price:	$32.00
No possibility stock will be worth less this amount in one year:	$30.00
Exercise Price:	$27.00
	Value of call = $5.66, Intrinsic Value = $5.00

	Value of call = $3.66, Intrinsic Value = $5.00
	Value of call = $5.66, Intrinsic Value = $2.00
Given the following option quote information:
	Calls	Puts
Option and NY Close	Expiration	Strike Price	Volume	Last	Volume	Last
XYZ
	February	112	85	7.55	40	0.60
	March	112	61	8.55	22	1.55
	May	112	22	10	11	2.85
	August	112	3	12.5	3	4.70

The current stock price is $111.00 and the stock price on the expiration date is $125.00. How much is your options investment worth? (ignore commissions)

	$13,000.00
	$14,000.00

$130.00

• Given the following parameters use put-call parity to determine the price of a put option with the same exercise price.

Current stock price:	$48.00
Call option exercise price:	$50.00
Sales price of call options:	$3.80
Months until expiration of call options:	3
Risk free rate:	2.6 percent
Compounding:	continuous
	Price of put option = $4.52

	Value of call: $9.44
	Value of call: $13.66

5. A bond has 4 years to maturity, a coupon of 9 percent paid annually and currently sells at par. What is the duration of the bond?

	3.53 years
	4.90 years

3.74 years

6. You have entered into a forward contract with the following parameters:

Bond:	10 year, zero coupon bond
Issuance:	Will be issued in 1 year
Face Value:	$1000
1 year spot rate:	3 pct.
10 year spot rate:	6 pct.
	Forward price = $575.15

	Forward price = $542.59
	Forward price = $526.79

7. Use Black Scholes to Value the put and call given the following criteria. The stock price six months from the expiration of an option is $43.00, the exercise price of the option is $39, the risk free interest rate is 10 percent per annum, and the volatility is 20% per annum.

	c = 3.16, p = 1.06
	c = 4.00, p = 1.90

c = 6.33, p = 0.43