Suppose that zero-coupon bonds ($1 face values) maturing at six-month intervals out to three years are trading
Question:
Suppose that zero-coupon bonds ($1 face values) maturing at six-month intervals out
to three years are trading at 0.990 (the six-month bond), 0.975, 0.945, 0.915, 0.885,
and 0.855 (the three-year bond). What is the one-year forward, two-year swap rate
for swaps making semi-annual payments?
a.7.78% b.4.44%. c.5.56%. d.6.67%.
2.Suppose a stock is trading at 100, has a volatility of 60%, and pays no dividends.
The risk-free rate is 6% (continuously compounded). How many shares of the stock
are currently held in the replicating portfolio for the three-month at-the-money call
on the stock?
a.0.5398 shares of the stock.
b.0.4602 shares of the stock.
c.0.5793 shares of the stock.
d.0.5000 shares of the stock
3.If the cost of carry on a commodity exceeds its convenience yield, then the forward
prices for the commodity:
a.Are all equal to the spot price for any time-to-delivery.
b.Are increasing with time-to-delivery.
c.Are decreasing with time-to-delivery.
d.Have an inverted u-shape, initially rising but eventually falling with time-to-delivery.
4.Suppose you see three-month European calls with strikes of 900, 1,000, and 1,100,
all on the same underlying trading, at 142, 84, and 46, respectively. Three-month
zero coupon bonds are trading at 0.9901 per dollar of face. If you buy a butterfly,
financing the purchase by borrowing on a three-month term, for what underlying
prices will you realize a profit in three months?
a.If and only if the underlying price at maturity is between $920 and 1,079.
b.If and only if the underlying price at maturity is between $919.80 and 1,080.20.
c.If and only if the underlying price at maturity is between $920.20 and 1,079.80.
d.If and only if the underlying price at maturity is between $900 and 1,100.
5.Suppose a stock is priced at 100. Over the next period it will either go up to 113
or down to 88. The simple, one-period risk-free rate is 1%. What is the price of the
one-period at-the-money put?
a.$6.69.
b.$5.94.
c.$6.44.
d.$5.70.
Taxes And Business Strategy A Planning Approach
ISBN: 9780132752671
5th Edition
Authors: Myron Scholes, Mark Wolfson, Merle Erickson, Michelle Hanlon