Finance

Com 4FE3 Assignment 2 Instructions     This assignment can be done individually or with one partner, and is due in class on Thursday November 27. Please use 4 decimal points in your answers. All interest rates herein are expressed with continuous compounding. Please use continuous compounding in your answers. Please ensure that your answers are as complete as possible. For numerical questions, simply calculating the numbers out will not be sufficient. Please also provide me with the reasons for your calculations. Correct thinking processes are much more important than correct numbers. Therefore, regardless of whether or not your numbers are correct, no marks will be given if (a) no explanation of your calculations is provided; or (b) the explanation provided is incorrect. On the other hand, even if your numbers are incorrect, partial marks will be given if your thinking process is correct. Please note that marks can only be given based on what you write. Therefore, I request that you attempt to convey your ideas to me as clearly as possible. I will not make a guess as to what you intend to mean if you do not make it obvious and clear. When your answers involve taking positions in securities or lending/borrowing, please mention all the relevant details such as the timing of the transactions, the side of the contracts (e.g., long or short forward), the length of the contracts (e.g., 6-month futures), the exercise prices (in case of options) and the interest rates (in case of lending or borrowing). Please be very careful with the logic of your solutions. For example, if the price of an asset at some future point in time is random, you cannot assume that you know that price. I consider this kind of mistake to be fundamental, and so anyone who makes it will get zero point for that question. The majority of the questions in this assignment are taken (or are adapted) from questions from past exams. Therefore, it is important that you try to do every question on your...