# Fight Finance

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Below are 4 option graphs. Note that the y-axis is payoff at maturity (T). What options do they depict? List them in the order that they are numbered

Your main expense is fuel for your car which costs $100 per month. You just refueled, so you won't need any more fuel for another month (first payment at t=1 month). You have$2,500 in a bank account which pays interest at a rate of 6% pa, payable monthly. Interest rates are not expected to change.

Assuming that you have no income, in how many months time will you not have enough money to fully refuel your car?

In the Merton model of corporate debt, buying a levered company's debt is equivalent to buying risk free government bonds and:

Two call options are exactly the same, but one matures in one year and the other matures in two years. Which option would you expect to have the higher price, the option which matures or , or should they have the price?

The current gold price is $700, gold storage costs are 2% pa and the risk free rate is 10% pa, both with continuous compounding. What should be the 3 year gold futures price? An equity index is currently at 5,000 points. The 2 year futures price is 5,400 points and the total required return is 8% pa with continuous compounding. Each index point is worth$25.

What is the implied continuous dividend yield as a continuously compounded rate per annum?

You buy a house funded using a home loan. Have you or debt?

A company can invest funds in a five year project at LIBOR plus 50 basis points pa. The five-year swap rate is 4% pa. What fixed rate of interest can the company earn over the next five years by using the swap?

A risk manager has identified that their pension fund’s continuously compounded portfolio returns are normally distributed with a mean of 5% pa and a standard deviation of 20% pa. The fund’s portfolio is currently valued at \$1 million. Assume that there is no estimation error in the above figures. To simplify your calculations, all answers below use 2.33 as an approximation for the normal inverse cumulative density function at 99%. All answers are rounded to the nearest dollar. Which of the following statements is NOT correct?

Being long a call and short a put which have the same exercise prices and underlying stock is equivalent to being: