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# Fin 4910/6440 Take Home Exam Spring 2008

1. r= 8%
m= 2
The rate with continuous compounding is 7.84%

2. FV = \$1,200
PV = \$1,000
m = 2
With semi-annual compounding the return is R where
1000 *(1+ R/2)^2 = 1200
R= 19.09%

3. r = 12%
The rate of interest is R where R
e^R = (1+.12/12)^12
R= 11.94%

4. r = 9%
m = 4
The equivalent rate of interest with quarterly compounding is R where

e^.09 = (1+R/4)^4
or R = 0.09102
The amount of interest paid each quarter is therefore;
\$227.55

## Arithmetic mean = 5.80%

Geometric mean = 4.36%

## 6 Day Closing price u = ln(pt/pt-1) U^2

1 25.2
2 30.1 0.177681 0.0315706
3 32.7 0.08285 0.0068641
4 29.3 -0.10979 0.0120533
5 31.5 0.0724 0.0052418
Sum 0.223144 0.0557298

## The standard deviation of wekly return is

10.6971%
Assuming that there are 52 weeks in a year, the annualized volatility is
1.48%
The standard error of this estimate is 0.47%
7 spot price 0.46 0.59 -0.28 -0.31 0.61
Futures price 0.49 0.79 -0.18 -0.32 0.55

a. Covariance = 0.178396
b. Correlation coefficient = 0.97821897
c. Standard deviation of spot price = 0.46832681
d. Standard deviation of futures price = 0.48675456
e. Minimum variance hedge ratio = 0.94118516 1.01671

8 Mean 9%
Standard deviation = 3.50%

Y = (X - u)/Stdev = 0.857143
Y > .857143 = 0.1956829692 The probability of the price rising more than
12% is 0.19568297

9 Amount of dividend = \$1
Price = \$35.75
Rate = 10%
Time of earned dividends 3 6 9 12
0.97531 0.95122942 0.9277435 0.904837

## 10 Value of index = 450

Dividend yield = 1.25%
Risk-free rate = 5.75%
Time = 0.25

## 11 June 8 futures price = \$54.18 per barrel

November 10 futures price = \$58.19
Hedged amount 20000
Unhedged amount 5000
Price paid = \$1,382,850.00 assuming hedging 20 contracts

## 12 Maturity Rate% per annum

1 10%
2 11.90%
3 14.20%
4 15.50%
5 17.80%

F2 = 13.80%
F3 = 18.80%
F4 = 19.40%
F5 = 27.00%

13 N= 17 (8 years + 6 months)
FV = 100
Coupon rate = 8%
Coupon payment = 4
YTM = 6%
P/Y = 2 Semi-annual payments

a. PV = \$113.17
CF = 1.13166

b. N= 24
Coupon rate = 6.75%
Coupon payment = \$3.38
PV = \$106.35
CF = 1.06351
Bond futures contract = 119.75
c. 120.4688 135.5164 -15.0477 CTD
113.5313 127.3551 -13.8239

## 14 Interest period = 115

Reference period = 184
Yield = 8.50%
Repo rate = 2.25%
Cash price = 109.53125

## a. Dirty price = \$112.19

b. Cost of funding = \$0.14
c. Total cost of cash and carry = \$112.33
d. Forward accrued interest = \$3.12
e. Fair futures price = \$109.21

15 N= 5 FV = \$100.00
Yield = 11%
r= 8%
Pmt = \$8.00
1 2 3 4 5
7.166673 6.4201503837 5.75139 5.15229137 62.31058

a. Price = \$86.80

## b. Bond's duration = 4.256 years

c. Yield decrease = 0.20%
Increase in bond price = \$0.74
Increase in bond price = \$87.54
d. Bond's yield = 10.800%
Bond's price = \$87.54

## 16 Buy 5000 oz@\$4.554 per oz \$22,770.00

Storage cost = \$100.00 per month
Insurance = \$284.63 or \$71.16 per quarter

## If Dec spot price = \$4.71

Sell 5000 oz silver @4.71 \$23,525.00
Purchase Price \$22,770.00
Storage costs \$300.00
Insurance costs \$71.16
Net profit \$383.84