Quiz One Solutions
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- Words: 382
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Name: _______________________________________ ID
: _______________________________________
NoQuestion
Answer 1
Answer 2
Answer 3
Answer 4
You are short a forward contract on an investment asset with a delivery price K. On 1 the delivery date, T, the investment asset’s market price is ST. Which of the following diagrams best describes your payoff profile?
2
3
4
5
6
For a non-dividend paying asset and given: F0 = Forward price today with T = term to maturity a) Buy one F0 r = T-period risk free rate b) Sell short one S0 S0 = underlying asset spot price today. You notice by observing the market that F0 < S0*erT. You would... Based on the previous question; at time T, to a) Receive one S0 lock-in your profit, you would … b) Sell one S0 You will receive a student grant of €1,500 in four months and again in six months time. Interest rates are a constant 4%. Using €2,950 continuous compounding, what is the value of your grant today? You shorted an american put option with a Z - max(X-S,0) strike price X, for a premium Z. At expiration underlying price is S. your profit is: What is the current, arbitrage-free price of a 6 month forward contract on a 10-year bond. The face value of the bond is $1,000 and the market price is $1,050. The bond pays a 5% €1,101.58 coupon on a semi-annual basis and the next coupon is due in six months, immediately before the forward contract delivery. Risk free interest rates are constant at 2%. With regard to Futures Exchanges, which of Exchanges provide a
Ans
2
a) Sell short one F0 b) Buy one S0
a) Buy one F0 b) Buy one S0
Nothing, the market is in equilibrium
1
a) Deliver one S0 b) Buy one S0
a) Receive one S0 b) Buy one S0
a) Deliver one S0 b) Sell one S0
3
€2,955
€3,045
€3,050
1
max(S-X,0) - Z
max(X-S,0) - Z
Z - max(S-X,0)
€1,110.55
€1,085.06
€1,035.55
The exchange clearinghouse The exchange allows
The exchange provides a
1
4
• • • •
Answer all questions All questions carry equal marks Answer 1, 2, 3 or 4 on the right-hand side Ensure you have entered your name and Student ID on the first page
: _______________________________________
NoQuestion
Answer 1
Answer 2
Answer 3
Answer 4
You are short a forward contract on an investment asset with a delivery price K. On 1 the delivery date, T, the investment asset’s market price is ST. Which of the following diagrams best describes your payoff profile?
2
3
4
5
6
For a non-dividend paying asset and given: F0 = Forward price today with T = term to maturity a) Buy one F0 r = T-period risk free rate b) Sell short one S0 S0 = underlying asset spot price today. You notice by observing the market that F0 < S0*erT. You would... Based on the previous question; at time T, to a) Receive one S0 lock-in your profit, you would … b) Sell one S0 You will receive a student grant of €1,500 in four months and again in six months time. Interest rates are a constant 4%. Using €2,950 continuous compounding, what is the value of your grant today? You shorted an american put option with a Z - max(X-S,0) strike price X, for a premium Z. At expiration underlying price is S. your profit is: What is the current, arbitrage-free price of a 6 month forward contract on a 10-year bond. The face value of the bond is $1,000 and the market price is $1,050. The bond pays a 5% €1,101.58 coupon on a semi-annual basis and the next coupon is due in six months, immediately before the forward contract delivery. Risk free interest rates are constant at 2%. With regard to Futures Exchanges, which of Exchanges provide a
Ans
2
a) Sell short one F0 b) Buy one S0
a) Buy one F0 b) Buy one S0
Nothing, the market is in equilibrium
1
a) Deliver one S0 b) Buy one S0
a) Receive one S0 b) Buy one S0
a) Deliver one S0 b) Sell one S0
3
€2,955
€3,045
€3,050
1
max(S-X,0) - Z
max(X-S,0) - Z
Z - max(S-X,0)
€1,110.55
€1,085.06
€1,035.55
The exchange clearinghouse The exchange allows
The exchange provides a
1
4
• • • •
Answer all questions All questions carry equal marks Answer 1, 2, 3 or 4 on the right-hand side Ensure you have entered your name and Student ID on the first page
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