Description
Avoid plagiarism as much as possible
Assignment-2
Financial Derivatives (FIN405)
Deadline: (19/10/2024 @ 23:59 PM)
Course Name: Financial Derivatives
Course Code: FIN405
Student’s Name:
Semester: 1st
CRN: 12323
Student’s ID Number:
Academic Year: 2024-25 1st Semester
For Instructor’s Use only:
Instructor’s Name: Ahlam Alrehaili
Students’ Grade: /10
Level of Marks: High/Middle/Low
Instructions – PLEASE READ THEM CAREFULLY
• This assignment is an individual assignment.
• The Assignment must be submitted only in WORD format via allocated folder
on Blackboard.
• Assignments submitted through email will not be accepted.
• Students are advised to make their work clear and well presented. This also
includes filling your information on the cover page.
• Students must mention question number clearly in their answer.
• Late submitted assignments will NOT be entertained.
• Avoid plagiarism, the work should be in your own words, copying from students
or other resources without proper referencing will result in ZERO marks. No
exceptions.
• All answered must be typed using Times New Roman (size 12, double-spaced)
font. No pictures containing text will be accepted and will be considered
plagiarism).
Submissions without this cover page will NOT be accepted.
Assignment Questions
Q.1 Explain each of the following concepts as they relate to call options. (02
Marks)
a. Delta
b. Gamma
c. Rho
d. Vega
Q.2 Explain the advantages and disadvantages to a covered call writer of
closing out the position prior to expiration. (02 Marks)
Q.3 Explain the basic concepts of price and value for futures and forward
contracts. (02 Marks)
Q.4 One stock index futures was priced at 960.50 in September. The S&P 500
index was at 956.49. The contract expires 73 days later.
a. Assuming continuous compounding, suppose the risk-free rate is 5.96
percent and the dividend yield on the index is 2.75 percent. Is the futures
overpriced or underpriced?
b. Assuming annual compounding, suppose the risk-free rate is 5.96 percent
and the future value of dividends on the index is $5.27. Is the futures overpriced
or underpriced? (04 Marks)
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