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Assume S = $63, K = 60, div = 0, r = 0.04, σ = 0.35, and 90 days until expiration. What is the premium on a knock-in call option with an up-and-in barrier of $65? A) $1.96 B) $2.06 […]

A Forward Rate Agreement contains an agreed interest rate of 3.1% on a 6-month loan. If settled at the time of borrowing, what amount would the borrower pay or receive on a $500,000 loan if the prevailing 6-month interest rate […]

Suppose the 180-day futures price on crude oil is $110.00 per barrel and the volatility is 20.0%. Assume interest rates are 3.5%. What is the price of a $120 strike call futures option that expires in 180 days? A) $1.89 […]

A stock has a historical volatility of 39%. The data shows significantly increased volatility in recent data and significantly lower volatility in older data. The implied estimate of the unconditional volatility using the GARCH model is most likely to be […]

What is the maximum profit that an investor can obtain from a strategy employing a long 830 call and a short 850 call over 6 months? Interest rates are 0.5% per month. A) $6.80 B) $7.68 C) $9.24 D) $12.32 […]

Consider a one-period binomial model of 6 months. Assume the stock price is $45.00, σ = 0.20, r = 0.06 and the stock’s expected return is 12.0%. What is the discount rate for a $45.00 strike European call option (Y)? […]

All of the positions listed will benefit from a price decline, except: A) Short put B) Long put C) Short call D) Short stock Techie, Inc. may invest $5 million in a new Star Communicator project. Annual production costs and […]

IBM and AT&T decide to swap $1 million loans. IBM currently pays 9.0% fixed and AT&T pays 8.5% on a LIBOR + 0.5% loan. What is the net cash flow for IBM if they swap their fixed loan for a […]

Lapel Inc. stock price is $32.00. Joe bets Sarah that the price will be above $35.00 in 6 months (180 days). The standard deviation of the stock is 0.25 and the risk free interest rate is 5.0%. If Joe wins […]

Refer to the table 6.1. The lease rate on the 6-month soybean contract is 0.35%. What is the implied annual storage cost if the cost is continuously paid and proportional? A) 0.84% B) 1.62% C) 2.30% D) 4.0% Using a […]

Assume S = $42, K = 45, div = 0, r = 0.04, σ = 0.48, and 80 days until expiration. What is the premium on a knock-out put option with a down-and-out barrier of $44? A) $2.13 B) $3.13 […]

Assume the spot price of gold is $745 per ounce and the 2-year forward price is $773. Annualized 1-year and 2-year forward interest rates are 5.0% and 5.2%, respectively. For a commodity-linked note to sell at par, what is the […]