Questions from Corporate Finance

Q: Following Table 27.10, compute the prices of first,

Following Table 27.10, compute the prices of first, second, and Nth-to-default bonds assuming that defaults are uncorrelated and that there are 5, 10, 20, and 50 bonds in the portfolio. How are the Nt...

Q: Consider the widget exchange. Suppose that each widget contract has a

Consider the widget exchange. Suppose that each widget contract has a market value of $0 and a notional value of $100. There are three traders, A, B, and C. Over one day, the following trades occur: A...

Q: Consider the example in Table 4.6. Suppose that losses

Consider the example in Table 4.6. Suppose that losses are fully tax-deductible. What is the expected after-tax profit in this case? Table 4.6

Q: Suppose the S&R index is 800, and that the

Suppose the S&R index is 800, and that the dividend yield is 0. You are an arbitrageur with a continuously compounded borrowing rate of 5.5% and a continuously compounded lending rate of 5%. Assume th...

Q: Consider the implied forward rate between year 1 and year 2,

Consider the implied forward rate between year 1 and year 2, based on Table 7.1. a. Suppose that r0 (1, 2) = 6.8%. Show how buying the 2-year zero-coupon bond and borrowing at the 1-year rate and impl...

Q: What 8-quarter dollar annuity is equivalent to an 8-

What 8-quarter dollar annuity is equivalent to an 8-quarter annuity of =C1?

Q: The price of a non-dividend-paying stock is $

The price of a non-dividend-paying stock is $100 and the continuously compounded risk-free rate is 5%. A 1-year European call option with a strike price of $100 × e0.05×1= $105.127 has a premium of $1...

Q: Use the same data as in the previous problem, only suppose

Use the same data as in the previous problem, only suppose that the call price is $5 instead of $4.110. Data from Previous Problem: Let S = $40, K = $40, r = 8% (continuously compounded), σ = 30%, δ...

Q: Compute the 1-year forward price using the 50-step

Compute the 1-year forward price using the 50-step binomial tree in Problem 11.13. Problem 11.13 Repeat the previous problem for n = 50. What is the risk-neutral probability that S1< $80? S1> $120? Pr...

Q: Consider a bull spread where you buy a 40-strike put

Consider a bull spread where you buy a 40-strike put and sell a 45-strike put. Suppose σ = 0.30, r = 0.08, δ = 0, and T = 0.5. a. Suppose S = $40. What are delta, gamma, vega, theta, and rho? b. Suppo...