Derivative Investments (5%)

Question 1

Put-Call Parity

Synthetic Put

Answer 1

P = C + X / (1 + r_rf)ⁿ - S

or

Put = Call + PV_X - Stock

Long Call, Long Bond, Short Stock

Question 2

Forward Rate Agreement

FRA

Answer 2

(r_ex - r_cont)(n/360)

————————— * Notional

 1 + r<sub>ex</sub>(n/360)

Question 3

FRA Quick Math

Answer 3

{[(Single Bond - First Bond) / Periods Between] * Total Periods} + First Bond

Question 4

Lower Bound for a

European Call

Answer 4

Ø or P - PV_X

Whichever is greater

Question 5

How do you calc profit on covered call?

Answer 5

S_{T -}S₀- MAX(0,S_T-X) + C₀

• S_T= stock price at expiration
• S₀=Price you bought the stock at
• X= strike price
• C₀ = amnt you pay on call

Question 6

value @ risk

Answer 6

• Min amnt of loss expected over a given time period at a given probability level.