Derivatives solution
MFIN6003 Derivative Securities
Dr. Huiyan Qiu
End-of-chapter Questions for Practice (with Answers)
Following is a list of selected end-of-chapter questions for practice from McDonald’s
Derivatives Markets. For students who do not have a copy of the McDonald’s book, be aware that a copy of the book is reserved at the main library of the University of Hong Kong for you to borrow for short period of time.
Answers provided are for your reference only. It is complied directly from the solution manual provided by the author. If you identify any error, please let me know.
Chapter 1: 1.3, 1.4, 1.11
Chapter 2: 2.5, 2.9, 2.13, 2.16
Chapter 3: 3.1, 3.3, 3.10, 3.12, 3.14, 3.15, 3.18
Chapter 4: 4.1, 4.4, 4.5, 4.15, 4.17
Chapter 5: 5.4, 5.10, 5.12, 5.15, 5.18
Chapter 7: 7.3, 7.6, 7.8, 7.9, 7.12, 7.15, 7.16
Chapter 8: 8.3, 8.7, 8.10, 8.13, 8.14, 8.15, 8.17
Chapter 9: 9.4, 9.9, 9.10, 9.12
Chapter 10: 10.1, 10.5, 10.10, 10.12, 10.14, 10.17, 10.18
Chapter 11: 11.1, 11.7, 11.16, 11.17, 11.20
Chapter 12: 12.3, 12.4, 12.5, 12.7, 12.14, 12.20
Chapter 13: 13.1, 13.3, 13.14
Chapter 14: 14.6, 14.11, 14.12
Chapter 15: 15.1, 15.3, 15.4, 15.6
1
Chapter 1. Introduction to Derivatives
Question 1.3.
a. Remember that the terminology bid and ask is formulated from the market makers perspective. Therefore, the price at which you can buy is called the ask price. Furthermore, you will have to pay the commission to your broker for the transaction. You pay:
($41.05 × 100) + $20 = $4,125.00
b. Similarly, you can sell at the market maker’s bid price. You will again have to pay a commission, and your broker will deduct the commission from the sales price of the shares. You receive:
($40.95 × 100) − $20 = $4,075.00
c. Your round-trip transaction costs amount to:
$4,125.00 − $4,075.00 = $50
Question 1.4.
In this problem, the brokerage fee is variable, and depends on the actual dollar amount of the sale/purchase of the shares. The concept of the transaction cost
Dr. Huiyan Qiu
End-of-chapter Questions for Practice (with Answers)
Following is a list of selected end-of-chapter questions for practice from McDonald’s
Derivatives Markets. For students who do not have a copy of the McDonald’s book, be aware that a copy of the book is reserved at the main library of the University of Hong Kong for you to borrow for short period of time.
Answers provided are for your reference only. It is complied directly from the solution manual provided by the author. If you identify any error, please let me know.
Chapter 1: 1.3, 1.4, 1.11
Chapter 2: 2.5, 2.9, 2.13, 2.16
Chapter 3: 3.1, 3.3, 3.10, 3.12, 3.14, 3.15, 3.18
Chapter 4: 4.1, 4.4, 4.5, 4.15, 4.17
Chapter 5: 5.4, 5.10, 5.12, 5.15, 5.18
Chapter 7: 7.3, 7.6, 7.8, 7.9, 7.12, 7.15, 7.16
Chapter 8: 8.3, 8.7, 8.10, 8.13, 8.14, 8.15, 8.17
Chapter 9: 9.4, 9.9, 9.10, 9.12
Chapter 10: 10.1, 10.5, 10.10, 10.12, 10.14, 10.17, 10.18
Chapter 11: 11.1, 11.7, 11.16, 11.17, 11.20
Chapter 12: 12.3, 12.4, 12.5, 12.7, 12.14, 12.20
Chapter 13: 13.1, 13.3, 13.14
Chapter 14: 14.6, 14.11, 14.12
Chapter 15: 15.1, 15.3, 15.4, 15.6
1
Chapter 1. Introduction to Derivatives
Question 1.3.
a. Remember that the terminology bid and ask is formulated from the market makers perspective. Therefore, the price at which you can buy is called the ask price. Furthermore, you will have to pay the commission to your broker for the transaction. You pay:
($41.05 × 100) + $20 = $4,125.00
b. Similarly, you can sell at the market maker’s bid price. You will again have to pay a commission, and your broker will deduct the commission from the sales price of the shares. You receive:
($40.95 × 100) − $20 = $4,075.00
c. Your round-trip transaction costs amount to:
$4,125.00 − $4,075.00 = $50
Question 1.4.
In this problem, the brokerage fee is variable, and depends on the actual dollar amount of the sale/purchase of the shares. The concept of the transaction cost