Questions from Corporate Finance

Q: Verify that the 4-year zero-coupon bond price generated

Verify that the 4-year zero-coupon bond price generated by the tree in Figure 25.5 is $0.6243. Figure 25.5

Q: Compute the 95% 10-day VaR for a written strangle

Compute the 95% 10-day VaR for a written strangle (sell an out-of-the-money call and an out-of-the-money put) on 100,000 shares of stock A. Assume the options have strikes of $90 and $110 and have 1 y...

Q: Repeat the previous problem, except that the time to maturity can

Repeat the previous problem, except that the time to maturity can be 1, 2, 3, 4, 5, 10, or 20 years. How does the bond yield change with time to maturity?

Q: When you open a brokerage account, you typically sign an agreement

When you open a brokerage account, you typically sign an agreement giving the broker the right to lend your shares without notifying or compensating you. Why do brokers want you to sign this agreement...

Q: An off-market forward contract is a forward where either you

An off-market forward contract is a forward where either you have to pay a premium or you receive a premium for entering into the contract. (With a standard forward contract, the premium is zero.) Sup...

Q: Compute estimated profit in 1 year if Telco sells a put option

Compute estimated profit in 1 year if Telco sells a put option with a strike of $0.95, $1.00, or $1.05. Draw a graph of profit in each case.

Q: For the period 1999–2004, using daily data, compute

For the period 1999–2004, using daily data, compute the following: a. An EWMA estimate, with b = 0.95, of IBM’s volatility using all data. b. An EWMA estimate, with b = 0.95, of IBM’s volatility, at...

Q: Suppose that 10 years from now it becomes possible for money managers

Suppose that 10 years from now it becomes possible for money managers to engage in time travel. In particular, suppose that a money manager could travel to January 1981, when the 1-year Treasury bill...

Q: Using the same information as the previous problem, suppose the interest

Using the same information as the previous problem, suppose the interest rate on the borrowing date is 7.5%. Determine the dollar settlement of the FRA assuming a. Settlement occurs on the date the lo...

Q: Given an 8-quarter oil swap price of $20.

Given an 8-quarter oil swap price of $20.43, construct the implicit loan balance for each quarter over the life of the swap.