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University of Medical Sciences & Technology Faculty of Business Administration

The document is a past exam for a Financial Derivatives course. It contains 6 questions covering topics like options, interest rate swaps, Greeks (delta, vega), and the relationship between stock volatility and call option prices. Students are instructed to answer 4 questions of their choice in the 3 hour exam.

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50 views2 pages

University of Medical Sciences & Technology Faculty of Business Administration

The document is a past exam for a Financial Derivatives course. It contains 6 questions covering topics like options, interest rate swaps, Greeks (delta, vega), and the relationship between stock volatility and call option prices. Students are instructed to answer 4 questions of their choice in the 3 hour exam.

Uploaded by

aya ahmed
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOC, PDF, TXT or read online on Scribd
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University of Medical Sciences & Technology

Faculty of Business Administration


Date: 03.07.2013 Time: Three hours
FINANCIAL DERIVATIVES
Batch (7) Final Exam

ANSWER FOUR QUESTIONS ONLY

Question One:
1. You purchased from your broker 200 shares of West Bank’s common shares on
margin at $60 per share. If the initial margin is 45%, how much did you borrow
from the broker? 
2. In 1973, a revolutionary change occurred in the options world. Explain that
change and how affected the derivative industry?

Question Two:
Trader X' (Put Buyer) purchases a put contract to sell 100 shares of XYZ
Corp. to 'Trader Y' (Put Writer) for $60 per share. The current price is $65
per share, and 'Trader X' pays a premium of $5 per share. If the price of
XYZ stock falls to $50 a share right before expiration, what are the courses
of action that are available to Trader X?

Question Three:
Two companies agree to enter the following swap:
Term (tenor) Five years
Bond dealer pays fixed rate 6.5 percent
Insurance company pays floating rate LIBOR flat, paid in arrears
Notional amount $200 million
Payment frequency every 6 months using 180/360
day count LIBOR is 4.0% when the swap is initiated
a. How much the net payment will be from the fixed-rate payer (bond dealer)
to the floating-rate payer (Insurance Company) at the end of the first six
months?
b. Why use interest rate swaps?
Question Four:
a. What is the option delta of a put on Nassau Company will be if it’s
stock price increased by $2 and the put price on the same stock
decreased by $1?
b. if a portfolio of 100 American call option have a delta of 2.5 what will
happen to the portfolio if
i. The stock price rise by $1?
ii. If the stock price declined by $0.5?

Question Five:
A stock is trading at $46 and a Jun 50 call is selling for $2. Assume that the Vega
of the option is 0.15 and that the underlying volatility is 25%. If the volatility
increased by 1% to 26% what will happen to the option price? What will happen to
the option price if volatility dropped by 2% to 23%?

Question Six:
Call prices are directly related to the stock’s volatility, yet higher volatility means
that the stock price can go lower. How would you resolve this apparent paradox?

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