What are the answers:

Questions 1-6should be answered by building ann=n=10-period binomial model for the short-rate,ri,jri,j. The lattice parameters are:r0,0=5%r0,0=5%,u=1.1u=1.1,d=0.9d=0.9andq=1q=1/2q=1q=1/2.

Quiz instructions

Compute the price of a zero-coupon bond (ZCB) that matures at timet=10t=10and that has face value 100.

Submission Guideline:Give your answer rounded to 2 decimal places. For example, if you compute the answer to be 73.2367%, submit 73.24.

1 point

2.Question 2

Quiz instructions

Compute the price of a forward contract on the same ZCB of the previous question where the forward contract matures at timet=4t=4.

Submission Guideline:Give your answer rounded to 2 decimal places. For example, if you compute the answer to be 73.2367%, submit 73.24.

1 point

3.Question 3

Quiz instructions

Compute the initial price of a futures contract on the same ZCB of the previous two questions. The futures contract has an expiration oft=4t=4.

Submission Guideline:Give your answer rounded to 2 decimal places. For example, if you compute the answer to be 73.2367%, submit 73.24.

1 point

4.Question 4

Quiz instructions

Compute the price of an American call option on the same ZCB of the previous three questions. The option has expirationt=6t=6and strike=80=80.

Submission Guideline:Give your answer rounded to 2 decimal places. For example, if you compute the answer to be 73.2367%, submit 73.24.

1 point

5.Question 5

Quiz instructions

Compute the initial value of a forward-starting swap that begins att=1t=1, with maturityt=10t=10and a fixed rate of 4.5%. (The first payment then takes place att=2t=2and the final payment takes place att=11t=11as we are assuming, as usual, that payments take place in arrears.) You should assume a swap notional of 1 million and assume that you receive floating and pay fixed.)

Submission Guideline:Give your answer rounded to the nearestinteger. For example, if you compute the answer to be -220,432.23, submit -220432.

1 point

6.Question 6

Quiz instructions

Compute the initial price of a swaption that matures at timet=5t=5and has a strike of 0. The underlying swap is the same swap as described in the previous question with a notional of 1 million. To be clear, you should assume that if the swaption is exercised att=5t=5then the owner of the swaption will receive all cash-flows from the underlying swap from timest=6t=6tot=11t=11inclusive. (The swaption strike of 0 should also not be confused with the fixed rate of 4.5% on the underlying swap.)

Submission Guideline:Give your answer rounded to the nearestinteger. For example, if you compute the answer to be -220,432.23, submit -220432.

1 point