Questions from Corporate Finance

Q: In this problem you will price various options with payoffs based on

In this problem you will price various options with payoffs based on the Eurostoxx index and the dollar/euro exchange rate. Assume that Q= 2750 (the index), x = 1.25 ($/=C), s = 0.08 (the exchange rat...

Q: Suppose that LMN Investment Bank wishes to sell Auric a zero-

Suppose that LMN Investment Bank wishes to sell Auric a zero-cost collar of width 30 without explicit premium (i.e., there will be no cash payment from Auric to LMN). Also suppose that on every option...

Q: Let c be consumption. Under what conditions on the parameters λ0

Let c be consumption. Under what conditions on the parameters λ0 and λ1 could the following functions serve as utility functions for a risk-averse investor? (Remember that marginal utility must be pos...

Q: Suppose we wish to borrow $10 million for 91 days beginning

Suppose we wish to borrow $10 million for 91 days beginning next June, and that the quoted Eurodollar futures price is 93.23. a. What 3-month LIBOR rate is implied by this price? b. How much will be n...

Q: Compute Macaulay and modified durations for the following bonds: a

Compute Macaulay and modified durations for the following bonds: a. A 5-year bond paying annual coupons of 4.432% and selling at par. b. An 8-year bond paying semiannual coupons with a coupon rate of...

Q: Suppose the S&P 500 futures price is 1000, σ

Suppose the S&P 500 futures price is 1000, σ = 30%, r = 5%, δ = 5%, T = 1, and n = 3. a. What are the prices of European calls and puts for K = $1000? Why do you find the prices to be equal? b. What a...

Q: Suppose you sell a 45-strike call with 91 days to

Suppose you sell a 45-strike call with 91 days to expiration. What is delta? If the option is on 100 shares, what investment is required for a delta-hedged portfolio? What is your overnight profit if...

Q: Suppose XYZ stock pays no dividends and has a current price of

Suppose XYZ stock pays no dividends and has a current price of $50. The forward price for delivery in one year is $53. If there is no advantage to buying either the stock or the forward contract, what...

Q: Let S = $100, K = $90, σ

Let S = $100, K = $90, σ = 30%, r = 8%, δ = 5%, and T = 1. a. What is the Black-Scholes call price? b. Now price a put where S = $90, K = $100, σ = 30%, r = 5%, δ = 8%, and T = 1. c. What is the link...

Q: Verify that the butterfly spread in Figure 3.14 can be

Verify that the butterfly spread in Figure 3.14 can be duplicated by the following transactions (use the option prices in Table 3.4): a. Buy 35 call, sell two 40 calls, buy 45 call. b. Buy 35 put, s...