Questions from Corporate Finance

Q: A stock currently sells for $32.00. A 6

A stock currently sells for $32.00. A 6-month call option with a strike of $35.00 has a premium of $2.27. Assuming a 4% continuously compounded risk-free rate and a 6% continuous dividend yield, what...

Q: Suppose you observe the following effective annual zero-coupon bond yields

Suppose you observe the following effective annual zero-coupon bond yields: 0.030 (1-year), 0.035 (2-year), 0.040 (3-year), 0.045 (4-year), 0.050 (5-year). For each maturity year compute the zero-coup...

Q: Suppose the stock price is $35 and the continuously compounded interest

Suppose the stock price is $35 and the continuously compounded interest rate is 5%. a. What is the 6-month forward price, assuming dividends are zero? b. If the 6-month forward price is $35.50, what i...

Q: Using the information in Table 8.9, what is the

Using the information in Table 8.9, what is the swap price of a 4-quarter oil swap with the first settlement occurring in the third quarter?

Q: Using the zero-coupon bond prices and oil forward prices in

Using the zero-coupon bond prices and oil forward prices in Table 8.9, what is the price of an 8-period swap for which two barrels of oil are delivered in even-numbered quarters and one barrel of oil...

Q: Using the assumptions in Tables 8.5 and 8.6

Using the assumptions in Tables 8.5 and 8.6, verify that equation (8.13) equals 6%. Equation (8.13)

Q: Suppose that 1- and 2-year oil forward prices are

Suppose that 1- and 2-year oil forward prices are $22/barrel and $23/barrel. The 1-and 2-year interest rates are 6% and 6.5%. Show that the new 2-year swap price is $22.483.

Q: Verify that the 1-year yield volatility of the 4-

Verify that the 1-year yield volatility of the 4-year zero-coupon bond price generated by the tree in Figure 25.5 is 0.14.

Q: This problem builds on the previous problem using the same parameters,

This problem builds on the previous problem using the same parameters, only valuing a call option instead of a bond. Using Monte Carlo, simulate the Vasicek process for 3 years. For each simulation tr...

Q: What is the price of a 3-year interest rate cap

What is the price of a 3-year interest rate cap with an 11.5% (effective annual) cap rate? For the first three problems, use the following information: