Questions from Business Statistics

Q: A 5-year bond provides a coupon of 5% per

A 5-year bond provides a coupon of 5% per annum payable semiannually. Its price is 104. What is the bond’s yield? You may find Excel’s Solver useful.

Q: What is the impact (if any) of negative interest rates

What is the impact (if any) of negative interest rates on: (a) The put–call parity result for European options (b) The result that American call options on non-dividend-paying stocks should never be e...

Q: Give two reasons why the early exercise of an American call option

Give two reasons why the early exercise of an American call option on a non-dividend paying stock is not optimal. The first reason should involve the time value of money. The second should apply even...

Q: ‘‘The early exercise of an American put is a trade-

‘‘The early exercise of an American put is a trade-off between the time value of money and the insurance value of a put.’’ Explain this statement.

Q: Why is an American call option on a dividend-paying stock

Why is an American call option on a dividend-paying stock always worth at least as much as its intrinsic value. Is the same true of a European call option? Explain your answer.

Q: Why did mortgage lenders frequently not check on information provided by potential

Why did mortgage lenders frequently not check on information provided by potential borrowers on mortgage application forms during the 2000 to 2007 period?

Q: A $100 million interest rate swap has a remaining life of

A $100 million interest rate swap has a remaining life of 10 months. Under the terms of the swap, six-month LIBOR is exchanged for 4% per annum (compounded semiannually). Six month LIBOR forward rates...

Q: What are the numbers in Table 8.1 for a loss

What are the numbers in Table 8.1 for a loss rate of (a) 12% and (b) 15%?

Q: Explain why the arguments leading to put–call parity for European

Explain why the arguments leading to put–call parity for European options cannot be used to give a similar result for American options.

Q: A corn farmer argues ‘‘I do not use futures contracts for

A corn farmer argues ‘‘I do not use futures contracts for hedging. My real risk is not the price of corn. It is that my whole crop gets wiped out by the weather.’’ Discuss this viewpoint. Should the f...