# Question: Consider the equity linked CD example in Section 15 3 a What happens

Consider the equity-linked CD example in Section 15.3.

a. What happens to the value of the CD as the interest rate, volatility, and dividend yield change? In particular, consider alternative volatilities of 20% and 40%, interest rates of 0.5% and 7%, and dividend yields of 0.5% and 2.5%.

b. For each parameter change above, suppose that we want the product to continue to earn a 4.3% commission. What price participation, γ , would the CD need to have in each case to keep the same market value?

a. What happens to the value of the CD as the interest rate, volatility, and dividend yield change? In particular, consider alternative volatilities of 20% and 40%, interest rates of 0.5% and 7%, and dividend yields of 0.5% and 2.5%.

b. For each parameter change above, suppose that we want the product to continue to earn a 4.3% commission. What price participation, γ , would the CD need to have in each case to keep the same market value?

**View Solution:**## Answer to relevant Questions

Use the information in Table 15.5. a. What is the price of a bond that pays one barrel of oil 2 years from now? b. What annual cash payment would the bond have to make in order to sell for $20.90? You have been asked to construct an oil contract that has the following characteristics: The initial cost is zero. Then in each period, the buyer pays S − F, with a cap of $21.90 − F and a floor of $19.90 − F. Assume ...Use information from Table 15.5. a. What is the price of a bond that pays one unit of the S&P index in 2 years? b. What quarterly dollar coupon is required if the bond is to sell at par? c. What quarterly payment of ...Assume there are 20 shares outstanding. Compute the value of the warrant and the share price for each of the following situations. a. Warrants for 2 shares expire in 5 years and have a strike price of $15. b. Warrants for 15 ...Suppose that S = $100, σ = 30%, r = 6%, t = 1, and δ = 0. XYZ writes a European put option on one share with strike price K = $90. a. Construct a two-period binomial tree for the stock and price the put. Compute the ...Post your question