Questions from Corporate Finance

Q: The premium of a 100-strike yen-denominated put on

The premium of a 100-strike yen-denominated put on the euro is ¥8.763. The current exchange rate is 95 ¥/=C. What is the strike of the corresponding euro-denominated yen call, and what is its premium?...

Q: Assuming that the stock price satisfies equation (20.20),

Assuming that the stock price satisfies equation (20.20), verify that Ke−r(T−t) +S(t)e−δ(T−t) satisfies the Black-Scholes equation, where K is a constant. What is the boundary condition for which this...

Q: You draw these five numbers from a standard normal distribution: {−

You draw these five numbers from a standard normal distribution: {−1.7, 0.55, −0.3, −0.02, .85}. What are the equivalent draws from a normal distribution with mean 0.8 and variance 25?

Q: Let ui∼ U (0, 1). Compute
−

Let ui∼ U (0, 1). Compute
− 6, 1000 times. (This will use 12,000 random numbers.) Construct a histogram and compare it to a theoretical standard normal density. What are the mean and standard deviat...

Q: A mine costing $1000 will produce 1 ounce of gold per

A mine costing $1000 will produce 1 ounce of gold per year forever at a marginal extraction cost of $250, with production commencing 1 year after the mine opens. Gold volatility is zero. What is the v...

Q: Construct payoff and profit diagrams for the purchase of a 950-

Construct payoff and profit diagrams for the purchase of a 950-strike S&R call and sale of a 1000-strike S&R call. Verify that you obtain exactly the same profit diagram for the purchase of a 950-stri...

Q: Assume r = 8%, σ = 30%, δ = 0

Assume r = 8%, σ = 30%, δ = 0. Using 1-year-to-expiration European options, construct a position where you sell two 80-strike puts, buy one 95-strike put, buy one 105-strike call, and sell two 120-str...

Q: Suppose you invest in the S&R index for $1000

Suppose you invest in the S&R index for $1000, buy a 950-strike put, and sell a 1050- strike call. Draw a profit diagram for this position. What is the net option premium? If you wanted to construct a...

Q: Use Itˆo’s Lemma to evaluate dS2. For the following four

Use Itˆo’s Lemma to evaluate dS2. For the following four problems, use Itˆo’s Lemma to determine the process followed by the specified equatio...

Q: Verify that you earn the same profit and payoff by (a

Verify that you earn the same profit and payoff by (a) buying the S&R index for $1000 and (b) buying a 950-strike S&R call, selling a 950-strike S&R put, and lending $931.37.