Question 35 bond pricing, zero coupon bond, term structure of interest rates, forward interest rate
A European company just issued two bonds, a
- 1 year zero coupon bond at a yield of 8% pa, and a
- 2 year zero coupon bond at a yield of 10% pa.
What is the company's forward rate over the second year (from t=1 to t=2)? Give your answer as an effective annual rate, which is how the above bond yields are quoted.
In the dividend discount model:
###P_0 = \dfrac{C_1}{r-g}###
The return ##r## is supposed to be the:
Estimate the US bank JP Morgan's share price using a price earnings (PE) multiples approach with the following assumptions and figures only:
- The major US banks JP Morgan Chase (JPM), Citi Group (C) and Wells Fargo (WFC) are comparable companies;
- JP Morgan Chase's historical earnings per share (EPS) is $4.37;
- Citi Group's share price is $50.05 and historical EPS is $4.26;
- Wells Fargo's share price is $48.98 and historical EPS is $3.89.
Note: Figures sourced from Google Finance on 24 March 2014.
What type of present value equation is best suited to value a residential house investment property that is expected to pay constant rental payments forever? Note that 'constant' has the same meaning as 'level' in this context.
A young lady is trying to decide if she should attend university. Her friends say that she should go to university because she is more likely to meet a clever young man than if she begins full time work straight away.
What's the correct way to classify this item from a capital budgeting perspective when trying to find the Net Present Value of going to university rather than working?
The opportunity to meet a desirable future spouse should be classified as:
A trader buys one December futures contract on orange juice. Each contract is for the delivery of 10,000 pounds. The current futures price is $1.20 per pound. The initial margin is $5,000 per contract, and the maintenance margin is $4,000 per contract.
What is the smallest price change would that would lead to a margin call for the buyer?
The below three graphs show probability density functions (PDF) of three different random variables Red, Green and Blue. Let ##P_1## be the unknown price of a stock in one year. ##P_1## is a random variable. Let ##P_0 = 1##, so the share price now is $1. This one dollar is a constant, it is not a variable.
Which of the below statements is NOT correct? Financial practitioners commonly assume that the shape of the PDF represented in the colour:
Question 797 option, Black-Scholes-Merton option pricing, option delta, no explanation
Which of the following quantities from the Black-Scholes-Merton option pricing formula gives the risk-neutral probability that a European put option will be exercised?
Question 904 option, Black-Scholes-Merton option pricing, option on future on stock index
A six month European-style call option on six month S&P500 index futures has a strike price of 2800 points.
The six month futures price on the S&P500 index is currently at 2740.805274 points. The futures underlie the call option.
The S&P500 stock index currently trades at 2700 points. The stock index underlies the futures. The stock index's standard deviation of continuously compounded returns is 25% pa.
The risk-free interest rate is 5% pa continuously compounded.
Use the Black-Scholes-Merton formula to calculate the option price. The call option price now is: