Valuing Investments

Write around 250 words how you could achieve the same or similar results of short selling a stock without using equities. What set of investments would allow you to replicate the same type of upside and downside exposure?

Consider three bonds with 6.7% coupon rates, all making annual coupon payments and all selling at a face value of $1,000. The short-term bond has a maturity of 4 years, the intermediate-term bond has maturity 8 years, and the long-term bond has a maturity of 30 years

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.a. What will be the price of each bond if their yields increase to 7.7%?

b. What will be the price of each bond if their yields decrease to 5.7%?

Consider the following investment strategy using European options on Ford that expire in July. Write one call option with an exercise price of $170, and write another call option with an exercise price of $195. The first call (X=$170) is currently priced at $10 and the second call (X=$195) is priced at $5.

a. Plot the profit of this strategy

b. Why would you follow this strategy?

c. What are the stock prices at which this strategy would break even?

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