I have just finished writing Midterm Exam 1 for Finance 4366. This test consists of 2 problems worth 32 points each and 1 problem worth 36 points.
Here are some suggestions as you prepare for this exam (to be given during our scheduled class time on Tuesday, September 26, from 2-3:15 p.m. in Foster 302):
- Use continuous compounding throughout the exam. This means the future value of $1 to be received T-t periods from date t is equal to , where r corresponds to the annualized riskless rate of interest.
- Rounding: In your computations, I suggest rounding to 4 places to the right of the decimal point.
- Hints: One question relates to pricing various types of forward contracts. The other two questions pertain to applying the replicating portfolio approach for determining arbitrage-free prices for options and other derivatives. No surprise here, right?
- Formula sheet: I just uploaded the formula sheet that will be included as part of the exam booklet on Tuesday; I highly recommend that you download and review the “Formula Sheet for Midterm exam #1” (technical note: if you have previously clicked on this link, clear out your browser cache so as to ensure that you are able to access the current version of this document).
Anyway, best of luck on the exam on Tuesday. If you have any questions or concerns, don’t hesitate to call me at my Baylor office number, which is 254-710-6207.