Math 373

Quiz 5

April 1, 2008

1.  (6 points) Tim takes out a loan. The loan is 1000. He must repay 1100 at the end of one year.

Which of the following are true:

  1. The interest rate is 10%
  2. The profit is zero.
  3. The payoff is 1100
  1. Only i. is true.
  2. Only ii. is true.
  3. Only i. and ii. are true.
  4. All three statements are true.
  5. The correct answer is not given by a., b., c., or d.

2.  (6 points) Sarah buys the stock of Fogarty Industries at a price of 1000. The risk free annual interest rate is 6%. In one year, Sarah closes out her position in the stock. Complete the following table for this transaction.

Spot Price of Fogarty Industries in 1 Year / Payoff / Profit
900
950
1000
1050
1100

3.  (6 points) Hannah buys a call on the stock of Fogarty Industries. The call has a strike price of 1000. The call will expire in one year. The call has a premium of 70. The risk free annual interest rate is 6%. Complete the following table for this transaction.

Spot Price of Fogarty Industries in 1 Year / Payoff / Profit
900
950
1000
1050
1100

4.  (6 points) Sheila sells a put on the stock of Fogarty Industries. The put has a strike price of 1000. The put will expire in one year. The put has a premium of 13.40. The risk free annual interest rate is 6%. Complete the following table for this transaction.

Spot Price of Fogarty Industries in 1 Year / Payoff / Profit
900
950
1000
1050
1100

5.  (6 points) Jeff enters into a short forward. In other words, he agrees to sell the stock of Fogarty Industries in one year for the price of 1060. The current stock price of Fogarty is 1000. The risk free annual interest rate is 6%. Complete the following table for this transaction.

Spot Price of Fogarty Industries in 1 Year / Payoff / Profit
900
950
1000
1050
1100