Fundamentals of Derivative Securities sample exam

FIN 441 Practice Final
(Must show calculations in detail to earn credit)
1. The price of a put option decreases when interest rates rise. Explain why. (9 points)
2. A stock price is currently $100. Over each of the next years it is expected to go up by
4.88% or down by 2.53%. The risk-free interest rate is 2.5% per annum. What is the
value of a two-year American put that has a strike price of $100? (18 points)
Answer: $0.79
3. Would an American call be worth more than its European counterpart if the
stock (a) does not pay dividend and (b) does pay dividend? Explain. (9 points)
4. Would an American put be worth more than its European counterpart if the
stock (a) does not pay dividend and (b) does pay dividend? Explain. (9 points)
5. Why do higher interest rates lead to higher call price but lower put prices? (9 points)
6. If the futures price is lower than the spot price plus carrying cost, is there an arbitrage
opportunity? If so, design a trading strategy. (9 points)
7. Under the terms of an interest rate swap, CAT Financial has agreed to receive 12%
per annum and to pay three-month LIBOR in return on a notional principal of $200
million with payments being exchanged every three months. The swap has a
remaining life of 6 months. The three-month LIBOR is 13% per annum for all
maturities. The three-month LIBOR at the last payment date was 11% per annum.
What is the value of the swap to CAT Financial? (15 points)
Answer: VFX = $198.844m; VFL = 198.929m
8. Companies A and B have been offered the following rates per annum on a $20
million five-year loan:
___________________________________________
Fixed Rate Floating Rate
___________________________________________
Company A 13.00% LIBOR + 0.4%
Company B 15.00% LIBOR + 0.8%
__________________________________________
Company A requires a floating-rate loan; Company B requires a fixed-rate loan. A
bank, acting as intermediary, will net 0.2% per annum in a swap. What rates of
interest will A and B end up paying after the swap? (10 points)
Answer: A LIBOR – 0.3% B 14.30%
9. Explain the difference between a recombining and non-recombining tree. Which one is
more desirable? Explain why? (10 points)

Order a unique copy of this paper
(550 words)

Approximate price: $22

Basic features
  • Free title page and bibliography
  • Unlimited revisions
  • Plagiarism-free guarantee
  • Money-back guarantee
  • 24/7 support
On-demand options
  • Writer’s samples
  • Part-by-part delivery
  • Overnight delivery
  • Copies of used sources
  • Expert Proofreading
Paper format
  • 275 words per page
  • 12 pt Arial/Times New Roman
  • Double line spacing
  • Any citation style (APA, MLA, Chicago/Turabian, Harvard)

Our guarantees

Delivering a high-quality product at a reasonable price is not enough anymore.
That’s why we have developed 5 beneficial guarantees that will make your experience with our service enjoyable, easy, and safe.

Money-back guarantee

You have to be 100% sure of the quality of your product to give a money-back guarantee. This describes us perfectly. Make sure that this guarantee is totally transparent.

Read more

Zero-plagiarism guarantee

Each paper is composed from scratch, according to your instructions. It is then checked by our plagiarism-detection software. There is no gap where plagiarism could squeeze in.

Read more

Free-revision policy

Thanks to our free revisions, there is no way for you to be unsatisfied. We will work on your paper until you are completely happy with the result.

Read more

Privacy policy

Your email is safe, as we store it according to international data protection rules. Your bank details are secure, as we use only reliable payment systems.

Read more

Fair-cooperation guarantee

By sending us your money, you buy the service we provide. Check out our terms and conditions if you prefer business talks to be laid out in official language.

Read more

Calculate the price of your order

550 words
We'll send you the first draft for approval by September 11, 2018 at 10:52 AM
Total price:
$26
The price is based on these factors:
Academic level
Number of pages
Urgency

Order your paper today and save 10% with the discount code HDCOVID10