Q1. The federal reserve lowers interests rates so that the risk-free

rate becomes zero, then what will be the ratio given by the price of an at the money call divided by the price of an at the money put with 9.5 years to maturity if markets are in equilibrium? Show your work

Q2. If the one year continuously compounded interest rate is 20, what is the one-year annual interest rate in percent per year? Show your work

Q3. If the loan was USD 902 and the interest on their one-year loan was 16.9% year. What would be the strike price for the equity? Assume annual compounding. Show the work

Multiple choice questions:
Q1- If after you created the unit trust the only change to the variables used to price the equity was the passing of time, which of the following would be true 3 months after the unit trust was created?
A.    the value of the equity would decrease
B.    the value of the equity would not change
C.     the value of the debt would increase
D.    the value of the debt would decrease
E.     the value of the debt would not change
F.     the value of the equity would increase

Q-2 Which of are true for the Black-Scholes equation?
A.    The levels of the underlying can be negative
B.    The levels of the underlying are assumed to be normally distributed
C.     The returns of the underlying are assumed to be normally distributed
D.    None of the option given is correct

Q-3 The payoff of a short call position is replicated by which?
A.    A short put and a short forward
B.    A short put and a long forward
C.     A long put and a long forward
D.    None

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