Q&A Hero

Related questions

Q: Assume the following: LN(S) and LN(Q) have a correlation coefficient of -0.65, S(0) = 55, Q(0) = 60, r = 0.04, σs = 0.22 σQ = 0.15, and dividends = 0. Using formula 20.39, what is the price of a claim that pays Q/? A) $8.16 B) $9.16 C) $10.16 D) $11.16

---

Q: Assume the following: LN(S) and LN(Q) have a correlation coefficient of 0.40, S(0) = 60, Q(0) = 60, r = 0.05, σs = 0.30 σQ = 0.25, and dividend = 0. Using formula 20.39, what is the price of a claim that pays ? A) $243.96 B) $322.96 C) $479.96 D) $532.96

---

Q: What advantage does a variance reduction technique offer?

---

Q: Why are covariances and correlations relevant to simulation development?

---

Q: If using Monte Carlo simulation, what is a typical number of iterations employed in the model?A) 1B) 10C) 1,000D) 1,000,000

---

Q: A stock owned by a portfolio has a bankruptcy probability of 1% per year. Using a Poisson distribution, what is the probability that this firm will not declare bankruptcy over the upcoming 10 years? A) 60% B) 70% C) 80% D) 90%

---

Q: Monte Carlo simulation assumes all assets earn: A) Risk-free rate B) Market Index return C) YTM on AAA Bonds D) Brokers call

---

Q: Given X1 = N (0, 1) and X2 = N (0.5, 8), what is the mean of ex2? A) 69.97 B) 79.97 C) 89.97 D) 99.97

---

Q: Given a mean of -4.3 and a standard deviation of 26, what is the equivalent draw from a normal distribution for a standard normal sample variable of 0.67? A) -13.12 B) 03.12 C) 13.12 D) 23.12

---

Q: What is the area under the standard normal distribution curve and is less than 0.654? A) 0.5115 B) 0.6215 C) 0.7434 D) 0.8283

---

Q: How are call and put options used to value starting, stopping, and restarting commodity extraction projects?

---

Q: What two components go into valuing an infinite commodity reserve?

---

Q: The price of oil is $115 per barrel. The effective lease rate and risk free rate are 3.0% and 4.0%, respectively. The constant cost of extraction is $85 per barrel and the volatility of prices is 15.0%. If an untapped well costs $2,100 to open and can produce indefinitely, at what price per barrel should the well be opened? A) $349 B) $423 C) $454 D) $484

---

Q: The current price of silver is $32.00 per ounce. The effective lease rate and risk free rate are 3.0% and 4.0%, respectively. If the cost to mine one ounce of silver is a constant $25.00, what is the trigger price per ounce at which the silver will be mined? A) $33.17 B) $35.17 C) $37.17 D) $39.17

---

Q: The Nikkei index is 22,550, K = 21,000, σ = 0.19, rf = 0.04, S = 0.10, r = 0.08 and div = 0.01. The yen to dollar spot rate is 104 and the correlation coefficient is 0.30. What would be the dollar price of a 2-year equity-linked foreign exchange call? A) $45.02 B) $35.02 C) $25.01 D) $15.02

---

Q: The current Nikkei index price is 21,200. Assume σ = 0.13, r = 0.05 and div = 0.015. If K = 20,000 yen and yen per dollar spot rates are 103, what is the dollar value of a 2-year call? A) $13.97 B) $18.97 C) $23.97 D) $28.97

---

Q: The Buckingham Casino offers to give every gambler one share of Buckingham Casino Corp. stock if the price drops below $40.00, as an incentive to spur business. If S = $45.25, σ = 0.15, r = 0.05 and div = 0, how much profit or loss is Buckingham incurring if they charge $0.25 to participate in this wager? A) $0.31 loss B) $0.31 profit C) $0.19 loss D) $0.19 profit

---

Q: In a specific wager, Pat is paid $5.00 if the price of ABC Corp. is above $85.00. Currently, ABC Corp. price is $75.00, σ = 0.25, r = 0.04, div = 0 and the wager lasts 6 months. If the price is below $85.00, Pat must pay $5.00. What is the net value of Pat's wager? A) -$2.49 B) +$2.49 C) -$1.50 D) +$1.50

---

Q: What does Girsanov's theorem tell us about drift and Brownian motion?

---

Q: For a utility function that exhibits decreasing martingale utility, the martingale utility is high when: A) Consumption and utility are low B) Consumption and utility are high C) Consumption is low and utility is high D) Consumption is high and utility is low

---

Q: Briefly define a terminal boundary condition.

---

Q: Mary wagers to pay one share of stock to Matt if the price at expiration in 1 year is above $75.00. Assume S(0) = 60.00, σ = 0.15, r = 0.04, and dividend rate = 0.01. What is the value of Mary's bet? A) $6.55 B) $7.55 C) $8.55 D) $9.55

---

Q: What is the relationship of the Sharpe ratios and risk premiums between stocks and options?

---

Q: What are two important implications of assuming that prices follow a geometric Brownian motion?

---

Q: When hedging a foreign currency position, what makes a down-and-out put unattractive?

---

Q: Assume S = $42, K = 45, div = 0, r = 0.04, σ = 0.48, and 80 days until expiration. What is the premium on a knock-out put option with a down-and-out barrier of $44? A) $2.13 B) $3.13 C) $3.47 D) $4.07

---

Q: What is the payoff on a 75 strike Asian option given it is a geometric average price call? The recent prices are 72, 76, 74, 78, and 78. A) 0.46 B) 0.56 C) 0.66 D) 0.76

---

Q: Assume S = $33.00, σ = 0.32, r = 0.06, div = 0.01, on a $35 strike call. Given delta = 0.3854 and gamma = 0.0847, what is the delta-gamma approximation for the call price on a $0.50 stock price increase? Assume 68 days until expiration. A) $1.34 B) $1.36 C) $1.38 D) $1.40

---

Q: What is the total dollar cost to create a delta hedge position against a 200 short call position? Assume calls are priced at $4.16, the delta is 0.7644, and stock price is $73.00. A) $9,880 B) $10,328 C) $11,168 D) $12,660

---

Q: What actions are required to both delta-hedge and gamma-hedge a written option position?

---