Question 1:
Assume there exists a call option on XYZ stock. At expiration the price of the stock will be either $50 or $80. Assume the stock is presently selling for $55 and the strike price is $55. If the risk-free rate = 8.5%, calculate the price of the call.
Question 2:
An annuity immediate pays 10 per year for 6 years and then decreases by 1 for 9 years and then pays 1 per year forever. If the effective annual rate is 8%, calculate the price of the annuity.
Question 3:
XYZ stock expects to pay a dividend of 2 dollars in one year. Assume the dividend grows at a rate of 3% per year forever and assume the expected yield on the stock is 10%. Let X = the price of the stock at the beginning of year 1 and let Y = the price of the stock at the beginning of year 6. Calculate Y - X.
Question 4:
A $1000 par value 10 year bond with 6% coupons convertible semiannually is selling for $1100. What is the yield to maturity of the bond?
Question 5:
Jim repays a loan by making annual interest payments to the lender at 7% and by making sinking fund deposits at 6% for 15 years. The borrower pays a total of $15,350 annually. What is the amount of the loan?
Assume there exists a call option on XYZ stock. At expiration the price of the stock will be either $50 or $80. Assume the stock is presently selling for $55 and the strike price is $55. If the risk-free rate = 8.5%, calculate the price of the call.
Question 2:
An annuity immediate pays 10 per year for 6 years and then decreases by 1 for 9 years and then pays 1 per year forever. If the effective annual rate is 8%, calculate the price of the annuity.
Question 3:
XYZ stock expects to pay a dividend of 2 dollars in one year. Assume the dividend grows at a rate of 3% per year forever and assume the expected yield on the stock is 10%. Let X = the price of the stock at the beginning of year 1 and let Y = the price of the stock at the beginning of year 6. Calculate Y - X.
Question 4:
A $1000 par value 10 year bond with 6% coupons convertible semiannually is selling for $1100. What is the yield to maturity of the bond?
Question 5:
Jim repays a loan by making annual interest payments to the lender at 7% and by making sinking fund deposits at 6% for 15 years. The borrower pays a total of $15,350 annually. What is the amount of the loan?