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1) Describe with a graph the payoff from the following portfolio: a long forward on some asset and a long put option on the same asset with the same maturity as the forward contract, and a strike price that is equal to the forward price at the time the portfolio is set up. What short selling means?
2) A trade buys a Euro call option and sells a Euro put option at the same time. The Options have the same underlying assets, strike price and maturity. Describe the trader’s position and visualize the payoff of this portfolio. Under what (mathematical) condition does the price of the call option equal the price of the put option?
A Treasury bond that matures in 10 years has a yield of 5%. A 10-year corporate bond has a yield of 7.75%. Assume that the liquidity premium on the corporate bond is 0.4%. What is the default risk premium on the corporate bond?
Suppose your retirement fund consists of a $7,500 investment in each of 20 (twenty) different common stocks. The portfolio's beta is 1.35. Now, suppose you sell 1 (one) of the stocks with a beta of 1.0 for $7,500 and use the proceeds to buy another s..
Additional paid-in capital refers to:
Assume that there are two health states and individual can either be sick with the disease or perfectly healthy. The probability of sickness is 0.5. Income of the individual when healthy is $14,000 but the income available for consumption becomes $6,..
A firm will sell an asset for $75,000 in three years and the cost of producing the asset today is $36,000. If the interest rate is 12 % per year, will the firm make a profit? What is the breakeven interest rate?
A family currently live in an apartment whose monthly rent is $950. They are thinking of buying a house which would cost $220,000. They plan to live in this house for 5 years and sell it at the end of the 5th year. Calculate the rent saved during yea..
Identify the key criteria and considerations that need to be taken into account in evaluating BFSI entry in the proposed foreign markets.
Soaring Eagles Corp. has total current assets of $11,674,000, current liabilities of $5,410,000 and a quick ratio of 0.77. What is its level of inventory?
You would like to retire with $2,129,728 at age 62. If these funds earn a rate of 7%/yr, what is the maximum you can withdrawal each year if you expect to live to 86? If this annual rate is compounded monthly, what would be the monthly maximum monthl..
An equally weighted portfolio consists of 46 assets which all have a standard deviation of 0.119. The average covariance between the assets is 0.08. Compute the standard deviation of this portfolio.
It is now march 1, 2001 and you are considering the purchase of an outstanding Kramerko bond with a par value of $1000 that was issued March 1, 1999. the Kreamerko bond has a 9.5 percent annual coupon and a 30-year original maturity (it matures on Fe..
Suppose a farmer is expecting that her crop of oranges will be ready for harvest and sale as 150,000 pounds of orange juice in 3 months time. Suppose each orange juice futures contract is for 15,000 pounds of orange juice, and the current futures pri..
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