Problem 1 (2 points) You are given the following data on United Commercial Bank Ltd. Rate sensitive

assets that includes $5M of securities with maturities less than a year, $50M of consumer loans with

maturities less than a year and $10M of variable rate commercial loans with maturities of more than

5 years. Rate sensitive liabilities includes $40M of commercial Paper, $13M of bank loans both of

which have maturities of less than a year and $17m of variable rate short-term deposits.

Calculate GAP for this bank and If interest rate rises by 1%, how much of this bank's income will go

up or down?

Problem 2 (2 points) A mutual fund's investment portfolio is comprised of the following: 2 million

shares of Alright Automotive (current price is $55 per share); 3 million shares of Best-Shape Exercise

Equipment (current price is $38 per share); and 5 million shares of California Fruit Corp. (current

price is $35 per share). This mutual fund has sold a total of 20 million of its own shares to customers.

What is the net asset value per share of the fund?

Problem 3 (4 points) Given the following data for Eastern Bank Limited (EBL), how much of EBL's net

worth will change if the interest rate goes down 45bp from current interest rate of 9%?

Assets Duration

$55m worth of 5 year commercial loans 3.2 year

$85m worth of 10 year 3% variable rate mortgage 8 year

$60m worth of 15 year 5% fixed rate mortgage 12 year

Liabilities Duration

$30m checkable deposit paying 4% 4 year

$50m savings deposit paying 3% 7.50 year

$70m time deposit paying 3.5% 8.90 year

Problem 4: (3 points) Draw the profit-loss diagram of the following positions (identify break-even

price, maximum gain and maximum loss):

Own a Stock, S 0 (Spot Price) = $80, Sell a call, C 0 (Call premium) = $5 with Strike price of $85

Problem 5. (3 points) Draw a profit-loss diagram of of the following positions (identify breakeven

price and maximum loss):

Own a Stock, S 0 (Spot Price) = $70, Buy a put P 0 (Put premium) = $6 with strike price of $65,

Problem 6.(1 points) Draw the profit-loss diagram identifying break-even price, maximum gain

and maximum loss if you buy a put option for $4 with exercise price of $40 when the stock is trading

at $45.

Problem 7. (1 points) Draw the profit-loss diagram identifying break-even price, maximum gain and

maximum loss if you sell a call option for $3 with exercise price of $40 when the stock is trading at

$30.

Problem 8. (1 point) A bank enters into an interest rate swap making annual fixed rate payments of

8% and receiving a floating rate equal to LIBOR + 2%. The notional principal on the swap is $10

million. What is the first net payment that the bank pays or receive under the swap if LIBOR is 7%?

Problem 9. (4 points) The current spot price of an asset is $228 and the interest rate is r = 6.75% and

the cost of carry is 1.5%. Suppose a six-month forward contract on the asset is quoted to you as F (0, 6)

= $233.21. Is here an arbitrage opportunity? If so, what is the arbitrage amount and how would you

achieve this arbitrage?

Problem 10. (4 points) Gold prices are quoted on CME as Spot price $267.00/oz and 3-month futures

as F (0, 3) $274.50/oz. If the interest rate is 6.75% and no storage cost, is there an arbitrage opportunity

? If so, what is the arbitrage amount and how would you achieve this arbitrage?