Finance (FIN494)

FIN 494 Final Exam Prepared_2020 3,4,6 10check 15 Exchange rate is currently $0.7 US per 1 Canadian Dollar. Interest rate is 2% in the US and 1% in Canada. A bank is short a futures contract on 1,000,000 Canadian Dollars with F= $0.75 per unit, maturing in one year. What position should the bank take to hedge the currency risk? Delta is position size discounted by the foreign interest rate. It should be negative because the bank is short. Delta = - 1,000,000 / 1.01 = -990,099 To hedge, the ...

FIN 494 Exam Prepared 6 - 2020 Question 1 1. Dynamically hedging a short position in a call option: a. Is more likely to save you money when the option expires out-of-the-money b. Is guaranteed to save you money c. Results in a reduced volatility of the gain / loss 10 points Question 2 1. Consider the following data on a European call option, recorded at two different points in time on the same day (10:00 am and 10:15 am). Suppose you hold a short position in the option and delta-hedge i...

FIN 494 Exam Prepared 5 - 2020 Question 1 1. Which of the following statements is true? If interest rate is positive and the stock pays no dividends then it is better to keep an American call option alive than to exercise it even if it is far in the money It never makes sense to exercise an American put option early If a European option is priced below its lower bound, then the arbitrage includes borrowing at the risk-free rate Put-call parity holds for American options, just like it does ...

FIN 494 Exam Prepared 3_2020 Question 1 1. The S&P 500 futures has a multiplier 250. What is the delta of a long position in ten futures contracts? +1 +250 +2,500 +25,000 10 points Question 2 1. S&P 500 is now at 2,000. Ignore interest rate (assume everything is given in PV terms). Suppose you short a $20M portfolio with a beta of 0.8. Find the delta of your portfolio. 8,000 10,000 -8,000 10 points -10,000 -0.8*(20,000,000/2,000)= -8000

FIN 494 Exam Prepared 7_Graded A Question 1 1. Which Greek shows the sensitivity of option price to the volatility of the underlying stock? a. Delta b. Gamma c. Vega d. Theta 10 points Question 2 1. If the implied volatility of an option is lower than your expectation of future stock volatility, you would be more likely to conclude that the option is a. Underpriced because the observed price of the option is lower than you think it should be b. Correctly priced because implied volatil...

FIN 494 Exam Prepared 4 - 2020 Question 1 1. The main principle for pricing interest-rate swaps can be generally formulated as: Spot and forward rates much be equal when the swap is first originated Present Values of fixed and floating rate payments must be equal at any time Present Values of fixed and floating payments must be equal when the swap is originated Fixed-rate and floating-rate payments must be equal 10 points Question 2 1. Analyze a two-year swap agreement to exchange LIBOR...

FIN 494 Exam Prepared 1_2020 1. Quoted price of the bond is $105. Coupon is 10% per year, paid twice a year. Par value is $100. The most recent coupon was paid 50 days ago, and the next coupon will be paid 132 days from now. Find the cash price of the bond. Round to the nearest integer. • Cash Price of Bond = Quoted Price + Accrued Interest Coupon amount is 10%*100*(1/2)= 5 Paied twice per year Quoted price of the bond is given 105 The cash price of the bond= 105+(50/132*$5)=106.89 ...

FIN 494 Exam Prepared 7_Graded A Question 1 1. Which Greek shows the sensitivity of option price to the volatility of the underlying stock? a. Delta b. Gamma c. Vega d. Theta 10 points Question 2 1. If the implied volatility of an option is lower than your expectation of future stock volatility, you would be more likely to conclude that the option is a. Underpriced because the observed price of the option is lower than you...

FIN 494 Exam Prepared 5_2020 Question 1 1. Which of the following statements is true? If interest rate is positive and the stock pays no dividends then it is better to keep an American call option alive than to exercise it even if it is far in the money It never makes sense to exercise an American put option early If a European option is priced below its lower bound, then the arbitrage includes borrowing at the risk-free rate Put-call parity holds for Amer...

FIN 494 Exam Prepared 4_2020 Question 1 1. The main principle for pricing interest-rate swaps can be generally formulated as: Spot and forward rates much be equal when the swap is first originated Present Values of fixed and floating rate payments must be equal at any time Present Values of fixed and floating payments must be equal when the swap is originated Fixed-rate and floating-rate payments must be equal 10 points Question 2 ...