# Derivatives 200079 Midsemester Exam

Satisfactory Essays

UNIVERSITY OF WESTERN SYDNEY School of Economics and Finance 200079 Derivatives INTERIM TEST (KEY) PARRAMATTA Spring Session 2012 TIME ALLOWED: 1 hour FORMAT: 20 multiple-choice questions WEIGHTING OF EXAMINATION: 30% SUBJECT CO-ORDINATOR: Dr. I. Nalson SCIENTIFIC (NON-PROGRAMMABLE) CALCULATORS AND FOREIGN LANGUAGE DICTIONARIES ARE PERMITTED NAME: ____________________________________ STUDENT NUMBER:__________________________ TUTORIAL TIME ____________________________ Instructions to candidates: THIS IS A CLOSED BOOK EXAMINATION MULTIPLE-CHOICE QUESTIONS NB: Indicate the answer you think is correct on the computerised sheet 1. The price …show more content…

A. 8.24% B. 7.02 % C. 7.19%* D. None of the above \$75er*4 = 100 er*4 = 100/75 er*4 = 1.33333333 Take logs of b.s. r4 = 0.28768207 r 0.28768207/4 r = 0.0719205 10. The current price of silver is \$750. Storage costs are \$8 per ounce per quarter payable in advance. The interest rate is 12% p.a. with continuous compounding. Calculate the futures price of silver for delivery in six months (to two decimal places). A: \$721.44 B: \$659.43 C: \$813.12* D: None of the above F0 = (S0 + U)erT U = \$8 + \$8e-0.12*0.25 U = \$8 + \$7.763564265 F0 = (\$750+ \$15.76356427)e0.12*0.5 F0 = \$813.1157286 = \$813.12 11. A company has a \$90 million portfolio with a beta of 1.5. The S & P index is currently standing at 3000. Futures contracts on \$250 times the index can be traded. What trade is necessary to change the beta of the portfolio to one? A: Sell 60 contracts* B: Buy 75 contracts C: Sell 90 contracts D: None of the above If B > B* short (B-B*) P/A contracts (1.5 – 1)\$(90,000,000/(\$250*3000) = 60 12. Using the data from the previous question, what trade is necessary to increase the beta of the portfolio to 1.8 from the original beta of 1.5 A: Sell 44 contracts B: Buy 56 contracts C: Buy 36 contracts* D: None of the above If B < B* long (B*- B) P/A contracts (1.8 – 1.5) (\$90,000,000/(\$250*3000) = 36 13. The three-year zero rate is 6.45% and the four-year zero rate is 7.2%