Zero Coupon Bond Price Calculate the price of a zero coupon bond that matures in 9 years if the market interest rate is 8 percent. Assume semi-annual interest payments and $1,000 par value. (Round your answer to 2 decimal places.)

Multiple Choice

• $920.00

• $500.25

• $493.63

• $1,000.00

The current price of a non-dividend-paying stock is $32.59 and you expect the stock price to either go up by a factor of 1.397 or down by a factor of 0.716 over the next 0.7 years.

A European put option on the stock has a strike price of $33 and expires in 0.7 years. The risk-free rate is 3% (annual, continuously compounded).

Part 1. What is the option payoff if the stock price goes down?

Part 2. What is the risk-neutral probability of an up movement?

Part 3. What is the value of the option?

The current price of a non-dividend-paying stock is $266.72 and you expect the stock price to be either $293.39 or $242.47 after 0.5 years. A European call option on the stock has a strike price of $270 and expires in 0.5 years. The risk-free rate is 3% (EAR).

Part 1. What is the hedge ratio (delta)?

Part 2. How much money do you need to invest in riskless bonds to create a portfolio that replicates the payoff from one call option? Enter any amount borrowed as a negative number.

Part 3. What should be the price (premium) of the call option?

QUESTION TWO

A. In what situations should the transfer price be the external market price? (10 Marks)

B. How should the transfer price be established when there are diseconomies of scale and prices have to be lowered to increase sales volume? (10 Marks)

C. What is the ideal transfer price? (5 Marks)

D. In what circumstances should the transfer price be standard variable cost plus opportunity cost of making the transfer? (10 Marks)

E. Discuss the advantages and disadvantages of Market Price Based Transfer Prices and Cost Based Transfer Prices. Further, outline the main variants that exist under each method. (15 Marks)

When price elasticity of demand is equal to unity, a small decrease in price:

increases total revenue.

decreases total revenue.

has no effect on revenues.

raises marginal revenue.

If the market price were equal to the equilibrium price, who would receive the most consumer surplus from their purchase of a webcam?

If the price level in Japan increases more rapidly than the price level in Britain, we would expect

Select one:

Japanese productivity to have increased more rapidly than British productivity.

the British pound to depreciate against the Japanese yen.

the Japanese yen to depreciate against the British pound.

interest rates in Japan to be lower than interest rates in Britain.

On March 1 a commodity's spot price is $60 and its August futures price is $59. On July 1 the spot price is $64 and the August futures price is $63.50. A company entered into futures contracts on March 1 to hedge its purchase of the commodity on July 1. It closed out its position on July 1. What is the effective price (after taking account of hedging) paid by the company?

63.50

61.50

59.50

60.50

The spot exchange rate is 0.7000 AUD/USD and the Australian and US risk-free interest rates are 5% and 7% per annum (continuous compounded), respectively. What is the six-month forward exchange rate?

Group of answer choices

0.6930 AUD/USD

0.7070 AUD/USD

0.7177 AUD/USD

0.7249 AUD/USD

Which of the following statements is most accurate?

Group of answer choices

A stop-limit buy order with stop price $0.07 and limit price $0.1 will be executed at $0.1 or above.

A stop-limit buy order with stop price $0.07 and limit price $0.1 will become a limit buy order at $0.1 when price level $0.07 is reached.

A stop-limit buy order with stop price $0.07 and limit price $0.1 will be executed at $0.07 or above.

A stop-limit buy order with stop price $0.07 and limit price $0.1 will become a stop order at $0.07 when price level $0.1 or less is reached.