1. A zero-cost forward on Intel stock with maturity in three months has a strike price of $26.86. The annual riskfree interest rate is 4%. Assuming no arbitrage opportunities, what is the current price of Intel stock?

2. A company pays quarterly dividends. The next dividend is due tomorrow, and it is expected to be $1. The dividends decrease by 1% every quarter. The annual cost of equity for the stock ( ) is 10%. What is the stock price?

3. If insiders with private information are able to obtain abnormally high returns, this represents a contradiction to the semi-strong version of the Efficient Market Theory. True or False? Please explain.

4. A bond has a face value of $1,000, coupon rate of 8% (annual payments), yield to maturity of 7%, and maturity in 100 years. What is this bond's duration?
Hint: Calculate the bond's price. If the yield changed to 7.1%, how would the price change?

5. The current price of Caterpillar stock is $68.5. The annual standard deviation of the stock returns is 18%. The annual risk-free interest rate is 5%. What is the value of a European Put option on Caterpillar stock with a strike price of $72 and maturity in 2.5 years?

1. Compute the duration for bond C, and rank the bonds on the basis of their price volatility. The current rate of interest is 8%, so the prices of bonds A and B are $1,000 and $1,268, respectively
.
BOND COUPON TERM DURATION
A 8% 10 YRS 7.25
B 12% 10 YRS 6.74
C 8% 5YRS ?
Confirm your ranking by calculating the percenta

1) You owe the following $1,000 bonds:
Bond A 4% coupon due in three yrs
Bond B 5% coupon due in 5 yrs
Bond C 7% coupon due in 10 yrs
Currently the structure of yields is positive so that each bond sells for its par value. However, you expect that inflation

An insurance company is analyzing three bonds and is using duration as the measure of interest rate risk. All three bonds trade at a yield to maturity of 10% , have maturity of 5 years and have $10,000 par values. The bonds differ only in the amount of annual coupon interest they pay: 8, 10, and 12%
a) What is the d

Assume coupons are paid annually. Here are the prices of three bonds with 10-year maturities:
Bond Coupon (%) Price (%)
2 81.62
4 98.39
8 133.42
________________________________________
a. What is the yield to maturity fo

1) A bond manager who wishes to hold the bond with the greatest potential volatility would be wise to hold
a. short-term, high-coupon bonds.
b. long-term, low-coupon bonds
c. long-term, zero-coupon bonds
d. short-term, zero-coupon bonds
e. short-term, low-coupon bonds
2) A financial institution can h

I need help with these two questions:
1.A bank has three assets. It has $65 million invested in consumer loans with a 6 month duration, $26 million invested in T-Bonds with a 12 year duration and $39 million in 1 year maturity T-Bills. What is the duration of the bank's asset portfolio?
2. A bank has book value of assets e

Duration of a coupon paying bond is:
Equal to its number of payments.
Less than a zero coupon bond.
Equal to the zero coupon bond.
Equal to its maturity.
None of the above.

What is the duration of a bond with three years to maturity and a coupon of 6 percent paid annually if the bond sells at par? (Round your answer to 5 decimal places. (e.g., 32.16161)

What are the two risk components of interest rate risk? Relative to them, what are the implications of holding a bond to its duration versus holding the bond to maturity? (Be careful to explain the relation of Duration to Interest Rate Risk.)