Columbia University Financial Economics Worksheet
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Financial Economics
Homework/Problem Set 1 hapters 1-3
Please submit your assignment through Gradescope, remember to label your answers.
This problem set consist of 9 points
1. 1 point. A senior executive at GM is very upbeat about the prospects for his firm and
industry. Why should he not invest his personal resources in GM.?
2. 2 points. The spread between yields on commercial paper and Treasury bills is a
measure of what kind of risk? If investors anticipated a recession, how would the spread
between commercial paper and T-bills change and what direction?
3. 3 points. Which security should sell at a higher price and explain why?
a) A 10-year T note with a 4% coupon or one with a 5% coupon?
b) A 3-month expiration call option with an exercise price of $40 versus a 3-month call
on the same stock with an exercise price of $35.
c) A put option on the stock selling at $50 or a put option on another stock selling at $60
(all other characteristics of the stocks and options are assumed to be identical).
4. 3 points. In what kind of market would an illiquid security most likely to trade?
Please explain your answer for each choice why you chose or rejected it.
(a) Broker markets
(b) Electronic cross networks
(c) Electronic limit-order networks.
Purchase answer to see full
attachment
Homework/Problem Set 1 hapters 1-3
Please submit your assignment through Gradescope, remember to label your answers.
This problem set consist of 9 points
1. 1 point. A senior executive at GM is very upbeat about the prospects for his firm and
industry. Why should he not invest his personal resources in GM.?
2. 2 points. The spread between yields on commercial paper and Treasury bills is a
measure of what kind of risk? If investors anticipated a recession, how would the spread
between commercial paper and T-bills change and what direction?
3. 3 points. Which security should sell at a higher price and explain why?
a) A 10-year T note with a 4% coupon or one with a 5% coupon?
b) A 3-month expiration call option with an exercise price of $40 versus a 3-month call
on the same stock with an exercise price of $35.
c) A put option on the stock selling at $50 or a put option on another stock selling at $60
(all other characteristics of the stocks and options are assumed to be identical).
4. 3 points. In what kind of market would an illiquid security most likely to trade?
Please explain your answer for each choice why you chose or rejected it.
(a) Broker markets
(b) Electronic cross networks
(c) Electronic limit-order networks.
Purchase answer to see full
attachment
Explanation & Answer:
4 Questions
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