Question

20. The current interest rate on the 1-year T-Bill is 4% (APR). The market expects that the Fed will raise the rate next year thus the expected 1-year T-Bill rate is 8% (APR). According to the expectation hypothesis, the current 2-year T-note should offer an interest rate of (APR). 1) 4% 2) 5% 3) 6% 4) 7% 5) 8% 21. You are bullish on a pharmaceutical stock. The stock is currently trading at $100 per share and you have $6,000 of vour own to invest. You borrow an additional $4,000 from your broker and invest $10,000 in the stock. If the maintenance margin is 40%, at what price range you will receive a margin call? (pick the most correct answer and round to the closet cents) 1) Below 33.33 2) Below 66.67 3) Above 71.43 4) none of the above 22. You are bullish on IBM and have decided to buy 10 contracts (1000 shares) of at- the-money IBM call options which will expire in three months. Currently the IBM stock is trading at $80 per share and the call premium is $5 per share. At what stock price you will be able to break even on the expiration date? 1) 75 2) 80 3) 85 4) none of the above

Answer 1

Ans20 Current lys Rate =40%0 Expectad lye T ae =8%0 Currat 2 y& Rate= V CloD Ces) -I 1.o598 %3D 0.OS18 = 6%0 approx. A nswer 3)