86 views

Original Title: edu-mc-exam-mfe-0507

Uploaded by amarinscribd

edu-mc-exam-mfe-0507

Attribution Non-Commercial (BY-NC)

- A&J Study Manual for SOA Exam P/CAS Exam 1
- MFE
- MFE_SampleQS1-76
- Edu 2012 Spring Mlc Questions
- SOA Exam 4C Fall 2009 Exams Questions
- MFE-notes
- Edu 2009 Spring Exam Mfe Qa
- FINAN MFE / EXAM 3F
- MFE Study Guide
- Option Trading Workbook (Deb Sahoo)
- MFE Notes - 4.26
- 56018394 Guo s Solutions to Derivatives Markets Fall 2007
- AG-MA-03-99
- MFE
- MFE manual
- Actuarial Tutorial
- chapter 3.doc
- Practice Exam 2 (1)
- FRM Exam Questions Financial Markets and Products
- JPM Correlations RMC 20151 Kolanovic

You are on page 1of 20

Question # Answer

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19

B A C E D C E C A B D A E E C D B A D

1.

On April 30, 2007, a common stock is priced at $52.00. You are given the following: (i) (ii) Dividends of equal amounts will be paid on June 30, 2007 and September 30, 2007. A European call option on the stock with strike price of $50.00 expiring in six months sells for $4.50. A European put option on the stock with strike price of $50.00 expiring in six months sells for $2.45. The continuously compounded risk-free interest rate is 6%.

(iii)

(iv)

GO TO NEXT PAGE

2.

For a one-period binomial model for the price of a stock, you are given: (i) (ii) (iii) The period is one year. The stock pays no dividends.

u = 1.433 , where u is one plus the rate of capital gain on the stock if the price goes up.

(iv)

d = 0.756 , where d is one plus the rate of capital loss on the stock if the price goes down.

(v)

GO TO NEXT PAGE

3.

You are asked to determine the price of a European put option on a stock. Assuming the Black-Scholes framework holds, you are given: (i) (ii) (iii) (iv) (v) (vi) The stock price is $100. The put option will expire in 6 months. The strike price is $98. The continuously compounded risk-free interest rate is r = 0.055.

= 0.01 = 0.50

GO TO NEXT PAGE

4.

For a stock, you are given:. (i) (ii) (iii) (iv) The current stock price is $50.00.

= 0.08

The continuously compounded risk-free interest rate is r = 0.04. The prices for one-year European calls (C) under various strike prices (K) are shown below: K $40 $50 $60 $70 C 9.12 4.91 0.71 0.00

$ $ $ $

You own four special put options each with one of the strike prices listed in (iv). Each of these put options can only be exercised immediately or one year from now.

Determine the lowest strike price for which it is optimal to exercise these special put option(s) immediately.

$40 $50 $60 $70 It is not optimal to exercise any of these put options.

GO TO NEXT PAGE

5.

For a European call option on a stock within the Black-Scholes framework, you are given: (i) (ii) (iii) (iv) (v) (vi) The stock price is $85. The strike price is $80. The call option will expire in one year. The continuously compound risk-free interest rate is 5.5%.

= 0.50

The stock pays no dividends.

GO TO NEXT PAGE

6.

Consider a model with two stocks. Each stock pays dividends continuously at a rate proportional to its price.

S j ( t ) denotes the price of one share of stock j at time t.

Consider a claim maturing at time 3. The payoff of the claim is Maximum ( S1 (3), S 2 (3) ) . You are given: (i) (ii) (iii) (iv) (v)

S1 ( 0 ) = $100 S 2 ( 0 ) = $200

Stock 1 pays dividends of amount ( 0.05 ) S1 ( t ) dt between time t and time t + dt. Stock 2 pays dividends of amount ( 0.1) S 2 ( t ) dt between time t and time t + dt. The price of a European option to exchange Stock 2 for Stock 1 at time 3 is $10.

GO TO NEXT PAGE

7.

You are given the following information: Bond maturity (years) Zero-coupon bond price 1 0.9434 2 0.8817

A European call option, that expires in 1 year, gives you the right to purchase a 1-year bond for 0.9259. The bond forward price is lognormally distributed with volatility = 0.05 .

Using the Black formula, calculate the price of the call option.

GO TO NEXT PAGE

8.

Let S ( t ) denote the price at time t of a stock that pays no dividends. The Black-Scholes framework holds. Consider a European call option with exercise date T , T > 0 , and exercise price S ( 0 ) e rT , where r is the continuously compounded risk-free interest rate. You are given: (i) (ii) (iii)

S ( 0 ) = $100 T = 10

$7.96 $24.82 $68.26 $95.44 There is not enough information to solve the problem.

GO TO NEXT PAGE

9.

You use a binomial interest rate model to evaluate a 7.5% interest rate cap on a $100 three-year loan. You are given: (i) The interest rates for the binomial tree are as follows: r0 = 6.000% ru = 7.704% rd = 4.673% ruu = 9.892% rud = rdu = 6.000% rdd = 3.639% (ii) (iii) All interest rates are annual effective rates. The risk-neutral probability that the annual effective interest rate moves up or down is 1 2 . The loan interest payments are made annually.

(iv)

Using the binomial interest rate model, calculate the value of this interest rate cap.

GO TO NEXT PAGE

10.

For two European call options, Call-I and Call-II, on a stock, you are given: Greek Delta Gamma Vega Call-I 0.5825 0.0651 0.0781 Call-II 0.7773 0.0746 0.0596

Determine the numbers of units of Call-II and stock you should buy or sell in order to both delta-hedge and gamma-hedge your position in Call-I.

buy 95.8 units of stock and sell 872.7 units of Call-II sell 95.8 units of stock and buy 872.7 units of Call-II buy 793.1 units of stock and sell 692.2 units of Call-II sell 793.1 units of stock and buy 692.2 units of Call-II sell 11.2 units of stock and buy 763.9 units of Call-II

GO TO NEXT PAGE

11.

For a two-period binomial model for stock prices, you are given: (i) (ii) (iii) Each period is 6 months. The current price for a nondividend-paying stock is $70.00.

u = 1.181 , where u is one plus the rate of capital gain on the stock per period if the price goes up.

(iv)

d = 0.890 , where d is one plus the rate of capital loss on the stock per period if the price goes down.

(v)

Calculate the current price of a one-year American put option on the stock with a strike price of $80.00.

GO TO NEXT PAGE

12.

You are given the following information: (i) (ii) (iii) (iv) (v)

S ( t ) is the value of one British pound in U.S. dollars at time t.

dS (t ) = 0.1dt + 0.4d Z (t ) . S (t ) The continuously compounded risk-free interest rate in the U.S. is r = 0.08 . The continuously compounded risk-free interest rate in Great Britain is r* = 0.10 .

G ( t ) = S ( t ) e( )( ) is the forward price in U.S. dollars per British pound, and T is the maturity time of the currency forward contract.

r r * T t

Based on Its Lemma, which of the following stochastic differential equations is satisfied by G ( t ) ?

(A)

dG ( t ) = G ( t ) 0.12dt + 0.4dZ ( t ) dG ( t ) = G ( t ) 0.10dt + 0.4dZ ( t ) dG ( t ) = G ( t ) 0.08dt + 0.4dZ ( t ) dG ( t ) = G ( t ) 0.12dt + 0.16dZ ( t ) dG ( t ) = G ( t ) 0.10dt + 0.16dZ ( t )

GO TO NEXT PAGE

13.

Let P ( r , t , T ) denote the price at time t of $1 to be paid with certainty at time T, t T , if the short rate at time t is equal to r.

For a Vasicek model you are given:

P ( 0.04, 0, 2 ) = 0.9445 P ( 0.05, 1, 3) = 0.9321 P ( r*, 2, 4 ) = 0.8960

Calculate r * .

GO TO NEXT PAGE

14.

For a one-year straddle on a nondividend-paying stock, you are given: (i) (ii) The straddle can only be exercised at the end of one year. The payoff of the straddle is the absolute value of the difference between the strike price and the stock price at expiration date. The stock currently sells for $60.00. The continuously compounded risk-free interest rate is 8%. In one year, the stock will either sell for $70.00 or $45.00. The option has a strike price of $50.00.

GO TO NEXT PAGE

15.

For a six-month European put option on a stock, you are given: (i) (ii) (iii) (iv) (v) The strike price is $50.00. The current stock price is $50.00. The only dividend during this time period is $1.50 to be paid in four months.

= 0.30

The continuously compounded risk-free interest rate is 5%.

Under the Black-Scholes framework, calculate the price of the put option.

GO TO NEXT PAGE

16.

For an American perpetual option within the Black-Scholes framework, you are given: (i) (ii) (iii) h1 + h2 = 7 / 9 The continuously compounded risk-free interest rate is 5%.

= 0.30

Calculate h1 .

GO TO NEXT PAGE

17.

Let S ( t ) denote the price at time t of a stock that pays dividends continuously at a rate proportional to its price. Consider a European gap option with expiration date T , T > 0 . If the stock price at time T is greater than $100, the payoff is

S (T ) 90;

otherwise, the payoff is zero. You are given: (i) (ii) (iii)

S ( 0 ) = $80

The price of a European call option with expiration date T and strike price $100 is $4. The delta of the call option in (ii) is 0.2.

$3.60 $5.20 $6.40 $10.80 There is not enough information to solve the problem.

GO TO NEXT PAGE

18.

Consider two nondividend-paying assets X and Y, whose prices are driven by the same Brownian motion Z . You are given that the assets X and Y satisfy the stochastic differential equations:

dX ( t ) = 0.07 dt + 0.12 dZ ( t ) X (t )

dY ( t ) = G dt + H dZ ( t ) , Y (t ) where G and H are constants. You are also given: (i) (ii) (iii) d ln Y ( t ) = 0.06 dt + dZ ( t ) The continuously compounded risk-free interest rate is 4%.

< 0.25

Determine G.

GO TO NEXT PAGE

19.

Assume that the Black-Scholes framework holds. The price of a nondividend-paying stock is $30.00. The price of a put option on this stock is $4.00. You are given: (i) (ii)

= 0.28

= 0.10

Using the delta-gamma approximation, determine the price of the put option if the stock price changes to $31.50.

**END OF EXAMINATION**

STOP

- A&J Study Manual for SOA Exam P/CAS Exam 1Uploaded byanjstudymanual
- MFEUploaded bywatcentral
- MFE_SampleQS1-76Uploaded byJihyeon Kim
- Edu 2012 Spring Mlc QuestionsUploaded byAqua Xuesong Wang
- SOA Exam 4C Fall 2009 Exams QuestionsUploaded byaspiringinsomniac
- MFE-notesUploaded byahpohy
- Edu 2009 Spring Exam Mfe QaUploaded byYan David Wang
- FINAN MFE / EXAM 3FUploaded byDE Pear P
- MFE Study GuideUploaded byahpohy
- Option Trading Workbook (Deb Sahoo)Uploaded byDeb Sahoo
- MFE Notes - 4.26Uploaded byAlistair Rook
- 56018394 Guo s Solutions to Derivatives Markets Fall 2007Uploaded byPhillip O. Willsey
- AG-MA-03-99Uploaded byroberto
- MFEUploaded byJi Li
- MFE manualUploaded byashtan
- Actuarial TutorialUploaded byPeter Buchan
- chapter 3.docUploaded byThiện Thảo
- Practice Exam 2 (1)Uploaded byemmetlax
- FRM Exam Questions Financial Markets and ProductsUploaded byEmmanuelDasi
- JPM Correlations RMC 20151 KolanovicUploaded bydoc_oz3298
- Different Option Strategies (1)Uploaded bysizzlingabhee
- Black ScholesUploaded byMushtaq Hussain Khan
- Nagornov Arundel CaseUploaded byJean-Simon Cayer
- Basic Option StrategiesUploaded byRahimullah Qazi
- Rubinstein 94 Implied Binomial TreesUploaded bypballispapanastasiou
- Anticipated Information Releases Reflected in Call Option PricesUploaded byZhang Peilin
- OptionUploaded byBishnumaya
- OptionsUploaded byDennis Bacay
- Lecture Option StrategiesUploaded byKrlos Mb
- HedgingUploaded byadityachatla

- (SpringerBriefs in Economics) Ashima Goyal (Auth.)-History of Monetary Policy in India Since Independence-Springer India (2014)Uploaded byDinesh Mahapatra
- Aims of Finance FunctionUploaded byBV3S
- Advance Quiz 1 to PrintUploaded byJuly Lumantas
- 81011RMC No 2-2014Uploaded bywax00r
- Pooja Gla IbmUploaded byGarima Tulsyan
- Stanbic Bank Uganda Annual_Report for 2015Uploaded byThe Independent Magazine
- Assignment 1 Submission Date 9 Dec 2013Uploaded byfarhanhaseeb7
- Danaharta Annual Report 1999Uploaded byaz1972
- Sample 10Uploaded byJasmine Nicodemus
- Internship Report OnUploaded bySultan Ayyan
- Financial DerivativesUploaded byviveksharma51
- Resume.pdfUploaded byZiaul Haque
- One of the Nation’s Largest Pension Funds Could Soon Cut Benefits for Retirees - The Washington PostUploaded byRicardo Ponce
- The Role of a Contract ManagerUploaded byCyril Williams
- Blaw1 Extinguishment Part 2Uploaded byLoren Dorothea Prado
- Recto / Maceda Law SalesUploaded byKenaz Quijano
- Advance Corporate FinanceUploaded byHaris Raza
- 7110_s15_qp_21Uploaded byAhadh12345
- UT Dallas Syllabus for fin6300.501.11f taught by David Cordell (dmc012300)Uploaded byUT Dallas Provost's Technology Group
- The Golden DilemmaUploaded byeho429
- Toll Road SampleUploaded byOlajide Olanrewaju Adamolekun
- A Study on Capital Budgeting Decisions at, The Godavari Bio Refineries Ltd, SameerwadiUploaded byShivprabhu Antin
- Crane-Rental Concall - Emkay (19-July-10)Uploaded bySiddhartha Khemka
- Caylum Beat the Market Vol 4 Issue 1 Feb 2018Uploaded byzeebug
- 10000022227Uploaded byChapter 11 Dockets
- Impact on Stock Market Volatility in IndiaUploaded bySheetal Cheke
- 20140807_00848601000Uploaded byLacramioara Dumitrascu
- Jobswire.com Resume of kendraajpUploaded byapi-26927998
- LVMH Feb 2009 Annual Results PresentationUploaded byAla Baster
- AFS - Afghanistan Capital Markets AssessmentUploaded byShayan