Questions from Corporate Finance

Q: Suppose the spot $/¥ exchange rate is 0.008, the

Suppose the spot $/¥ exchange rate is 0.008, the 1-year continuously compounded dollar-denominated rate is 5% and the 1-year continuously compounded yen-denominated rate is 1%. Suppose the 1-year forw...

Q: a. What are some possible explanations for the shape of this

a. What are some possible explanations for the shape of this forward curve? b. What annualized rate of return do you earn on a cash-and-carry entered into in December of Year 0 and closed in March of...

Q: Suppose the yield curve is flat at 6%. Consider a 4

Suppose the yield curve is flat at 6%. Consider a 4-year 5%-coupon bond and an 8-year 7%-coupon bond. All coupons are annual. a. What are the prices and durations of both bonds? b. Consider buying one...

Q: Let S = $40, σ = 0.30,

Let S = $40, σ = 0.30, r = 0.08, T = 1, and δ = 0. Also let Q = $40, σQ = 0.30, δQ = 0, and ρ = 1. Consider an exchange call with S as the price of the underlying asset and Q as the price of the strik...

Q: Suppose a security has a bid price of $100 and an

Suppose a security has a bid price of $100 and an ask price of $100.12. At what price can the market-maker purchase a security? At what price can a market-maker sell a security? What is the spread in...

Q: Suppose you observe the following zero-coupon bond prices per $

Suppose you observe the following zero-coupon bond prices per $1 of maturity payment: 0.96154 (1-year), 0.91573 (2-year), 0.87630 (3-year), 0.82270 (4-year), 0.77611 (5-year). For each maturity year c...

Q: Let S = $100, K = $95, σ

Let S = $100, K = $95, σ = 30%, r = 8%, T = 1, and δ = 0. Let u = 1.3, d = 0.8, and n = 2. Construct the binomial tree for a call option. At each node provide the premium, ∆, and B.

Q: A lender plans to invest $100m for 150 days, 60

A lender plans to invest $100m for 150 days, 60 days from today. (That is, if today is day 0, the loan will be initiated on day 60 and will mature on day 210.) The implied forward rate over 150 days,...

Q: Consider a one-period binomial model with h = 1,

Consider a one-period binomial model with h = 1, where S = $100, r = 0, σ = 30%, and δ = 0.08. Compute American call option prices for K = $70, $80, $90, and $100. a. At which strike(s) does early exe...

Q: Repeat Problem 11.4, only set r = 0 and

Repeat Problem 11.4, only set r = 0 and δ = 0.08. What is the lowest strike price (if there is one) at which early exercise will occur? If early exercise never occurs, explain why not. For the followi...