Q: a. Suppose you enter into a long 6-month forward
a. Suppose you enter into a long 6-month forward position at a forward price of $50. What is the payoff in 6 months for prices of $40, $45, $50, $55, and $60? b. Suppose you buy a 6-month call option...
See AnswerQ: What is the rate on a synthetic FRA for a 180-
What is the rate on a synthetic FRA for a 180-day loan commencing on day 180? Suppose you are the counterparty for a borrower who uses the FRA to hedge the interest rate on a $10m loan. What positions...
See AnswerQ: Using the zero-coupon bond prices and natural gas swap prices
Using the zero-coupon bond prices and natural gas swap prices in Table 8.9, what are gas forward prices for each of the 8 quarters?
See AnswerQ: Suppose call and put prices are given by / Find
Suppose call and put prices are given by Find the convexity violations. What spread would you use to effect arbitrage? Demonstrate that the spread position is an arbitrage.
See AnswerQ: Suppose S0 = $100, K = $50, r
Suppose S0 = $100, K = $50, r = 7.696% (continuously compounded), δ = 0, and T = 1. a. Suppose that for h = 1, we have u = 1.2 and d = 1.05. What is the binomial option price for a call option that li...
See AnswerQ: Repeat the previous problem, except that for each strike price,
Repeat the previous problem, except that for each strike price, compute the expected return on the option for times to expiration of 3 months, 6 months, 1 year, and 2 years. What effect does time to m...
See AnswerQ: In the absence of an explicit formula, we can estimate the
In the absence of an explicit formula, we can estimate the change in the option price due to a change in an input—such as σ—by computing the following fo...
See AnswerQ: Suppose S = $40, K = $40, σ
Suppose S = $40, K = $40, σ = 0.30, r = 0.08, and δ = 0. a. What is the price of a standard European call with 2 years to expiration? b. Suppose you have a compound call giving you the right to pay $2...
See AnswerQ: A firm has outstanding a bond with a 5-year maturity
A firm has outstanding a bond with a 5-year maturity and maturity value of $50, convertible into 10 shares. There are also 20 shares outstanding. What is the price of the warrant? The share price? Sup...
See AnswerQ: Verify the binomial calculations in Figure 17.3.
Verify the binomial calculations in Figure 17.3.
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