Final Exam

Submitted By jolenekee
Words 860
Pages 4
Fall 2009

-

FlN150

- T.white -

FTNAL EXAM

- DERtvATtvES

MATH

DIRECTIONS: You must do all work on the blank sheets provided. UNLTKE FOR THE 3 TESTS, YOU SHOULD ATTEMPT ALL 10 QUESTIONS. Note that each question is equally weighted (25 points each), so that the total points possible on this exam is 250. you

may use a calculator and the normal distribution tables. The questions are ordered based on when the material first appears in your textbook. Good luck!

/ /1)

d6nominated interest rate is 5%. The price of a 2-year U.S.-@Ddenominated T=2 pyloqtion on Canpdial dollars, with a strike price of S1, is S.tO. Find the price of (,ooo )-v"^, u.s.@Jlddenominated calloptions on canadifr-doilars. .,/r. r

Suppose the current exchange rate is L.l-0 Canadian dollars per 1. U.S. dollar. Also, the Canadian-dollar-denominated interest rate is 4%, wbilqthe U.S.-dollar-

rA* I : l'l cS/frf or.

r

Ycs =.0

v,

f a =.oJ -l

v

2)7You are considering entering into a box spread, whereby you buy a 45-strike call z/ option for 58.50, sell a 45-strike put option for 53.50, sell a So-strike call option for 56.50, and buy a S0-strike put option for 56.00. Assume that all options can only be exercised 1 year from now. Also, assume that the continuously compounded risk-free interest rate is 3%. Construct a profit table (at time T) to demonstrate than an arbitrage opportunity exists (based on the given option ' prices), and state the amount of the guaranteed profit that is realized (at t=T).

Pur( .4oqo4(, t t'z) =,1

'/

You use a 2-period binomial tree model to price two call options on a futures contract. The initial futures price is 100, and subsequent prices (in the tree) are determined, assuming u*d = 1 and u/d = 1.5. Both call options have time-tomaturity of 6 months and strike price 100, but one option is European-style and the other...

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