Chapter

Money Market

1. Treasury bill with 100 days to maturity, a face value of $ 100,000 and selling for $97569.
What would be annualized yield, quoted the T-bill on bank discount?

2. If T-bill annualized yield on bank discount is 8.75% face value is $ 100,000 and maturity
is 100 days. What would be the discount and selling price of the T-bill?

3. An investor purchases a T-bill with a six month (182 days) and $100,000 par value for
$9600. what is annualized yield from investing in T-bill?

4. If an investor purchases 30 days commercial paper with a par value of $ 1 million for a
price of $ 990,000. What is the yield on commercial paper?

5. Suppose, the dollar principal in a repo transaction in $ 10 million and the repo rate is
6.50%. What is the dollar interest if he term of the repo one day?

6. An investor initially purchased security at a price of $9852, 217 with an agreement to sell
them back at a price of $ 10 million at the end of a 60 days period. What is the yield on the
repo?
 Chapter
Option market
Problem 1. A Put option on Indian stocks specifies an exercise price of $23. Today the
Stock’s price is $24. The premium on the put options is $3. Assume the option will not be
exercised until the maturity. Complete the following table:
Assume stock price at the time that the put Net profit or loss per share to be earned by
options is expire the writer of the put option
$20
21
22
23
24
25
26

2. Spread problem: Mr. Rashed has bought a 3-month call option on Grameenphone Share
with an exercise price of TK, 50, At a premium of TK, 4. He has also brough a put option on
the same share at an exercise price of TK, 40, at a premium of TK 1.50. GP share is currently
selling for TK, 45.
Requirement: what will be Mr. Rashed's Position after 3 months if the share price turns out
to be TK. 50 or Tk. 30?

3. Straddle problem: you have set up a straddle position on a company's share, you have
bought one 6-month call with an exercise price of TK, 75, for a premium of Tk. 3 and a 6-
month put with same exercise price for a premium of TK, 2. Assume that after 6 months
Price goes up to Tk, 78 or it comes down to TK 70, what is your profit or loss at expiration
of the option?
 Chapter
Equity Market
Problem-1:
The market price of the stock of Rolex Ltd. Is $60 per share and there are 1,00,000 shares
outstanding. Suppose the management of this company is considering a rights offering in
connection with the issuance of 1,00,000 raw shares. Each current shareholder would receive
one right for every single shares owned. The terms of right offerings are as follows: For one
right and $45(subscription price) a new share can be acquired.
i. What would the share price be often the right offering?
ii. What is the value of the right?
iii. Demonstrate the effect on the economic well-being of the initial shareholders as a
result of right offering.
Problem-2:
The market price of the stock if green fuel corporation is $40 per share and there are 30,000
shares outstanding. Thus, the capitalization of the firm is $12,000. Suppose the management
of this corporation is considering a rights offering in connection with the issuance of 10,000
new shares. Each current shareholder would receive one right for every two shares owned.
The terms of the rights offering are as follows: For two rights and $35(subscription price), a
new share can be acquired.
i. What would the share price be after the right offering?
ii. What is the value of the right?
iii. Demonstrate the effect on the economic well-being of the initial shareholders as a
result of the right offer.
Problem-3:
The market price of the stock of the Server corporation is $50 per share and there are one
million shares outstanding. Suppose the management of this corporation is considering a
rights offering in connection with the issuance of 6, 00,000 new shares. Each current
shareholder would receive one right for every two shares owned. The terms of the rights
offering are as follows: For two rights and $20 (the subscription price), a mew hare can be
acquired.
i. What would the share price be after the right offering?
ii. What is the value of the right?
iii. Demonstrate the effect on the economic well-being of the initial shareholders as a
result of the right offer.
Problem-4:
MCQ Ltd. Is issuing a bond on a competitive bidding basis. The Corporation has indicated
that it will issue $200 million of an issue. The following yield bids and corresponding
amounts were submitted: -
Bidder Amount (in millions) Bid

A $20 7.40%
B 40 7.50%
C 10 7.50%
D 50 7.50%
E 40 7.60%
F 20 7.60%
G 10 7.70%
H 10 7.70%
I 20 7.80%
J 25 7.90%
K 28 7.90%
L 20 8.00%
M 18 8.10%
i. Who are the winning bidders?
ii. How much of the security will be allocated to each winning bidders?
iii. If this auction is a single price auction, at what yield will each winning bidder be
awarded the security?
iv. If this auction is a multi-price auction, at what yield will each winning bidder be
awarded the security?
Problem-5:
Bachelor Corporation is issuing a bond on a competitive bidding basis. The corporation has
indicated that it will issue $300 million of an issue. The following yield bids and the
corresponding amounts were submitted by different investment banks.
Bidder Amount (in millions) Bid

A $80 6.4
B 70 6.5
C 10 6.5
D 100 6.5
E 40 6.6
F 40 6.6
G 40 6.7
i. Who are the winning bidders?
ii. How much of the security will be allocated to each winning bidders?
iii. If this auction is a single price auction, at what yield will each winning bidder be
awarded the security?
iv. If this auction is a multi-price auction, at what yield will each winning bidder be
awarded the security?
Problem-6:
Bachelor Corporation is issuing a bond on a competitive bidding basis. The corporation has
indicated that it will issue $300 million of an issue. The following yield bids and the
corresponding amounts were submitted by different investment banks.

Bidder Amount (in millions) Bid

A $80 6.4%
B 70 6.5%
C 10 6.5%
D 100 6.5%
E 40 6.6%
F 40 6.6%
G 40 6.7%
i. Who are the winning bidders?
ii. How much of the security will be allocated to each winning bidders?
iii. If this auction is a single price auction, at what yield will each winning bidder be
awarded the security?
iv. If this auction is a multi-price auction, at what yield will each winning bidder be
awarded the security?