Please see attached file.

Please see attached file.
FINC 634: Quiz 2 – Fall 2020 Name: Q1 Suppose you bought an XYZ Put Option with a strike price of $33 expiring in 30 days. This option is currently trading at $7.50. The Stock is currently at $28. How much intrinsic value does this option have? How much time value? Q2 A portfolio manager has a bond portfolio of $20 million. The duration of the portfolio is 6.7 years. The front month T-bond futures price is currently at: 107-15. The cheapest-to-deliver bond has a duration of 7 years. How many contracts (long or short) should the manager trade to hedge the portfolio risk against changes in interest rates? Q3 How is a forward rate agreement (FRA) different from a SWAP? Name some distinct differences as well as pros and cons of the two. Q4 In what situations would an investor want to create a synthetic short position in a stock rather than buying the stock outright? Give a detailed explanation with an example and discuss the pros and cons of creating a synthetic short position. Q5 Suppose you short a $42 Put with a premium of $3 and bought a $38 Put with a premium of $1. What is this strategy called? Ignoring time value of money and transaction costs, calculate max. profit, max. loss and break-even price. Q6 An investor is considering the following option strategy: Short 1 ABC 42 Call with a premium of $3.50 and Short 1 ABC 38 Put with a premium of $2.50 a) Name the strategy and draw a diagram showing the pay-off at maturity b) For what range of stock prices would this strategy lead to a profit/loss? Calculate max. profit/loss c) Under what assumptions would an investor employ this strategy. Will it help managing risk? Bonus Question Companies X and Y have been offered the following rates per annum on a $50 million 5-year loan: Company X requires a floating-rate loan; company Y requires a fixed-rate loan. Design a swap that will net a bank, acting as intermediary, 0.100% per annum and will be equally attractive to X and Y. Draw a graph similar to our examples in week 3 to show your answer.