*Section A*

*All questions carry equal marks of 5%.*

- What is the Non-Deliverable Forward (NDF) contract? Explain itsfeatures.

- What are the advantages of futures comparedforwards?

- Explain the term “in the money”. When is a call option in the money? When is a put option in themoney?

- What are the factors that are determining the price ofoptions?

- Assumeweconstructabullspreadbybuyingacalloptiononastockwithacertainstrike price (X1) and selling a call option with a certain strike price (X2) on the same stock. Draw its profitdiagram.

- Explainwhythethreedefinitionsofsustainablegrowthratesaredifferent?Whichoneis actually the most sustainable, andwhy?

- WriteafunctioncalledlemoninVBAwiththreevariablea,bandc,wherelemon=(ab

+ b) × c, and the output of the lemon must be an integer.

- What is the global minimum variance portfolio (GMVP)? What type of investors would want to invest init?

- Compare and contrast systematic and unsystematic risk. Is it possible to eliminate both risksentirely?

- Under which circumstances should you exercise an American callearly?

Section B

- (a) Suppose a bank is quoting the following exchange rates: DKK 7.4551–7.4558/€1

MXN 16.5779 – 16.5784/€1

Calculate the bid-offer rates between Danish Krone (DKK) and Mexican Peso (MXN). In these bid-offer rates, Danish Krone is the base currency. (Hint: the calculation process should involve two separate transactions.)

[50%]

- A 52-week Treasury Bill rate in the U.S. is currently 0.15%, and the exchange rate is currently US$1.6240/£1. If the U.K. investors expect that the exchange rate at the end of 52 weeks will be US$1.6321/£1, what is the expected returnin terms of pounds? Explain the law of oneprice.

# [20%]

- What are the factors that can affect foreign exchange rate in the longrun?

# [30%]

- (a) Calculate the duration of a bond with $1,000 par value and a 9 percent coupon rate, with five years still remaining to maturity, and a 9 percent yield to maturity.

# [20%]

- What are foreign bonds and Eurobonds? Discuss the popularity of Eurobonds over foreignbonds.

# [25%]

- Estimate the bond price of a newly issued 3-year maturity, 8% coupon bond making annual coupon payments for a yield to maturity of 4%. We assume that the bond face value is£1000.

- What is the European debt crisis? Discuss possible solutions to thecrisis.

# [25%]

*[30%]*

- Data on expected returns, standard deviations, covariances of returns and for security A, B and C are provided in the following spreadsheet. The portfolio of these three securitiesisconstructedbyinvestingwealthineachsecurityintheproportionsshownin cells B14, C14 andD14.

- Write down the
*actual*mathematical expressions for cells B17 and B18 withcell references (instead of the variables) to show the exact calculations of the portfolio expected return and the portfolio standard deviation of return.[15%]

- Write down the
*Excel*formulae for the calculation of the quantities in cellsB17 and B18 with cell references.[15%]

- Calculate the values in cells B17 and B18.[10%]

- What are the expected return and the standard deviation of return of a portfolio which is 50% long in security A, 25% long in security B and 25% long in security C?[10%]

- The risk-free rate is assumed to be 0.5% per year. Calculate the Sharperatios for securities A, B, C, as well as for the portfolio constructed in question 17(d) above.[20%]

- Comment on your answers to question 17(e) above.[30%]

- Data on stock price, exercise price, volatility, risk-free rate, and time to maturity that can be used to calculate the option prices are provided in the screenshot below. Use the information provided to answer questions18(a)-18(f).

- Write down the
*Excel*formula for cell B10.[15%]

- Calculate the value for cell B10.[10%]

- Write down the
*Excel*formula that can be used to calculate the value in cellE9. [15%]

- The value of N(d1) in cell E9 is 0.5697. Discuss the significance of this value in the context of risk management.[35%]

- You also want to use the put-call parity to calculate the price of a put on the stock with the same exercise price and characteristics. Write down the
*Excel*formula for cell B13.[15%]

- Calculate the value in cell B13.[10%]

Type of service-Academic paper writing

Type of assignment-Term Paper

Subject-Finance

Pages / words-6 / 1650

Academic level-Undergraduate

Paper format-Harvard

Line spacing-Double

Language style-UK English