Test Bank Answers Chapter 1: hedgers, speculators, arbitrageurs; 2:(a); 3: $3 loss; 4: $300 gain; 5: $500 loss; 6: $40; 7(i): $35; 7(ii): $20 Chapter 1: (c); 2: (a); 3: (b); 4: 72 cents; 5: $62; 6: (b); 7: (b); 8: $1,800; 9: $4,000; 10: $3,000 Chapter 1: (a); 2: $59.50; 3: $1,014; 4: 0.6 (or 60%); 5(i): 192 short; 5(ii): 48 short; 5(iii): 96 long; 6: (b); 7: (c); 8: (d) Chapter 1: 13.98%; 2: 8.16%; 3: 12.18%; 4: 9.00%; 5: 9.02%; 6: $8.63; 7: (d); 8: (b) and (d); 9: (b) Chapter 1: $400; 2: $40.50; 3: $35.84; 4: $7.78; 5: 0.6930; 6: –$1.96; 7: (c); 8: 0.9524; 9: (c); 10: (a) Chapter 1: (c); 2: 105.98; 3: 106.00; 4: (c); 5: (d); 6: $150; 7: years; 8: $2500 decrease; 9: 200; 10: (b) Chapter 1(i): 102.61; 1(ii): 102.21; 1(iii): -0.49; 1(iv): 0.45; 1(v): 0.44; 1(vi): 0.40; 2: 2.7%; 3: (b); 4: (a) and (d) Chapter 1(i): 100%; 1(ii): 55%; 1(iii): 0%; 1(iv): 100%; 1(v): 100%; 1(vi): 40%; 2: (a) and (c); 3: (b); 4: (b) Chapter 1(i): $4 and 500; 1(ii): $16 and 125; 1(iii): $20 and 100; 2: $1,880; 3: (a), (d) and (e) Chapter 10 1: (a), (d), and (e); 2: $6.43; 3: $6.43; 4: $4.64; 5: $6; 6: $2.09; 7: $3.06; 8: $5.50 Chapter 11 1(i): $3; 1(ii): $2; 1(iii): $2; 1(iv): $3; 2(i): $4; 2(ii): $1; 2(iii): $51 and $59; 3: $15 and $30 Chapter 12 1(i): 40%; 1(ii): $1.60; 1(iii) 60%; 1(iv): $3.60; 1(v) 0.4; 2: (d); 3: (b); 4: (a); 5: (b) and (c) Chapter 13 1: (b); 2: (d); 3: (a); 4: (b); 5: (b); 6: (d); 7: (b); 8: (c); 9: (d); 10: (c) Chapter 14 1: (a), (b), and (e); 2: (a), (b), and (e); 3: (d), (e), and (f); (b) (Yes the value does go up as the vesting period increases because the expected life increases The holder is constrained to behave more optimally!) Chapter 15 1(i): 200; (ii): 475; (iii): 100; (iv): 410; 2: (b); 3: (d); 4: 39.16; 5: 0.1048; 6: (b); 7: (c) Chapter 16 1: (b); 2: (a); 3(i): 0.6; 3(ii) 1.16 cents; 3(iii): 6.79 cents; 4: (a); 5: (a); 6: (a) and (d); 7: (c) Chapter 17 1(i): Long; 1(ii): 800; 2(i): 2,500 long; 2(ii): 3900 short; 3: (b); 4: (a); 5: (d); 6: (a) and (c); 7: 100 Chapter 18 1(i) u = 1.0618 ; 1(ii) d = 0.9418 ; 1(iii) p=0.4850; 2: 36.3 and 30 and 24.79; 3: (a) and (c); 4: $3.06; 5: $28.02 Chapter 19 1(i): Strike price; 1(ii): Implied volatility; 2: (i) fatter; (ii) fatter; (iii) fatter; (iv) thinner; 3: (a); 4: (b) and (c); 5: (a) Chapter 20 1(i) 1.9 million; 1(ii) 1.95 million; 2(i): 2.4%; 2(ii): 3.6%; 2(iii): $47,000; 3: (c); 4: (d); 5(i): 2.12%; 5(ii): 0.95%; 5(iii) 0.45 Chapter 21 1(i): 39; 1(ii): $3,000; 1(iii) 2.75; 2(i): bond price; 2(ii): interest rate; 2(iii): swap rate; 3: 6%; 4(i): $1,250; 4(ii): 0; 5: (b) and (d) Chapter 22 1: (b); 2: (b); (b); 4: (c); 5: (d); 6: (b); (b); 8: (c); 9: (a); 10: (c) Chapter 23 1(i): 4.5%; 1(ii) 5%; 2: (d); 3: (b); 4: (d); 5: (d); 6: (a); 7: (b); 8: synthetic; 9: (d) Chapter 24 1(i): 4; 1(ii): 0; 2: heating oil and gasoline; 3: (c); 4: (a); 5: (d); 6: (b); 7: (a); 8: (a) ... 36.3 and 30 and 24.79; 3: (a) and (c); 4: $3.06; 5: $28.02 Chapter 19 1(i): Strike price; 1(ii): Implied volatility; 2: (i) fatter; (ii) fatter; (iii) fatter; (iv) thinner; 3: (a); 4: (b) and. .. 3(iii): 6.79 cents; 4: (a); 5: (a); 6: (a) and (d); 7: (c) Chapter 17 1(i): Long; 1(ii): 800; 2(i): 2,500 long; 2(ii): 3900 short; 3: (b); 4: (a); 5: (d); 6: (a) and (c); 7: 100 Chapter 18 1(i) u =... 2(i): bond price; 2(ii): interest rate; 2(iii): swap rate; 3: 6%; 4(i): $1,250; 4(ii): 0; 5: (b) and (d) Chapter 22 1: (b); 2: (b); (b); 4: (c); 5: (d); 6: (b); (b); 8: (c); 9: (a); 10: (c) Chapter