1. A national bank buys a $1,000,000 face value bond with a face value coupon of 5% with one year to maturity for $1,2000,000. How much does the effective yield rise or fall?
2. When would a rapid build-up of inventories not require additional financing (an increase in liabilities)??
3. Suppose XYZ stock is trading at So=$1.01, u=1.02, d=1/1.02. The period risk-free rate is 1%, and the stock pays no dividends. Using the n-period BOPM, determine the equilibrium price of an XYZ 100 European call expiring at the end of the third period (n=3).