Final Exam Anwer of Finance Essay

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` Cover Type B TO BE RETURNED AT THE END OF THE EXAMINATION. THIS PAPER MUST NOT BE REMOVED FROM THE EXAM CENTRE. SURNAME:____________________________________ FIRST NAME:____________________________________ STUDENT NO:____________________________________ COURSE:____________________________________ 25556 The Financial System Special exam, spring semester, 2011 Time Allowed: 3 hours plus 10 minutes reading time. Exam day and date: 1. Exam Paper: • Please ensure that your name and student number are at the top of this page. • There are three parts to this exam: Part A, Part B and Part C. All questions are compulsory. • This paper will be…show more content…
8. Which of the following option values is determined by traders rather than the exchange? a) the contract’s size; b) the option’s premium; c) the option’s margin payments; d) the contract’s exercise price; e) the option’s expiry date. 9. From our study of plain vanilla swaps we learned that a) the floating rate payer will benefit if interest rates rise unexpectedly; b) the floating-rate payments are based on the cash rate; c) the fixed-rate payer will benefit if interest rates increase unexpectedly; d) settlement payments are made at the start of each quarter; e) none of the above answers are correct. 10. The liquidity premium hypothesis a) is that longer-term securities have more price risk than shorter-term securities; a) is based on the assumption that forward rates reflect expected future spot rates; b) implies that 2-period securities will trade at a higher price than one-period securities; a) assumes that financial markets are not liquid; a) is not correctly described by any of the above answers. Over/… 11. Our study of spot and forward interest rates allows us to conclude that a) forward short-term rates are traded in the money market; b) the two-period future value of $1 is given by (1 + 0r2)2; c) the one-period future value of $1 is given by (1 + 1r2)2;

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