# ACCG 253 preparation for final exam! (1 Viewer)

#### Monstar

##### Member
There are differences between the 2 methods however both should produce the same results. Binomial model i think just assumes there are 2 time periods when evaluating the call option. One method, which i dont really know the name of requires you emulate the pay off of a call option by calculating an amount which you need to borrow.. to me its sorta like 'homemade leverage'. The other way is like you described, 'risk neutral method'.

Probably best to learn both ways as they will probably ask us both ways. Chances are if you get different answers, the 'homemade leverage' method is probably where you went wrong.

#### randomguy777

##### Member
would anyone happen to have a copy of quiz 3? i left the quiz until the last minute on thursday and and guessed 30qs in a few minutes and obviously didn't get any of them right.

damn lost 7.5% assessment.

if anyone has a copy of quiz 3 questions + the a ,b,c,d responses please send to

randomguy777@gmail.com

#### Kutay

##### University
Quiz 3

Hey i did quiz 3 and submitted it!

I went today to go look a the assessment section of 253 and i cannot see quiz 3 anywhere?? Does anyone know what has happened? Is this like anyone elses?

regards Kutay

#### clairegirl

##### the name's Anne!
Re: Quiz 3

yeah i can't see mine either

#### Kutay

##### University
ok thats good its not just me

#### Monstar

##### Member
I know what intrinsic and time value mean.. but how do you work them out?

#### clairegirl

##### the name's Anne!
Monstar said:
I know what intrinsic and time value mean.. but how do you work them out?
Intrinsic value
For example, If a call options excercise price is \$5 and the underlying stock's market price is at \$15, then the intrinsic value of the call option is \$10.
However if its out the money, the intrinsic value is 0 ... no negative numbers

My understanding of time value

Time Value Of Call Option = Call Option Price - Intrinsic Value

Let me know what you think afterwards about the time value.

#### Monstar

##### Member
Cheers! what happends when there is a negative time value?

#### clairegirl

##### the name's Anne!
Time Value Of Call Option = Call Option Price - Intrinsic Value

can there be a negative time value? if you got rid of the intrinsic value (which amounts to zero in the worst case) ... that would leave you with

time value = call option price

So i think stock price would go zero. Not sure thought you may need to google it

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#### Kutay

##### University
I was wondering if people are going to bring in a financial calcualtor?

I was thinking of borrowing to save time for that one question on cost of debt..
However if i cant get one can someone give me the best way to attack linear interpoliation?

#### clairegirl

##### the name's Anne!
. trial and error than linear interpolation

start with the coupon rate... now if the price is higher than its supposed to be.... u want to increase the rate and vice versa.

so yeh just remember that increasing the rate will decrease the price of the bond and decreasing the rate will increase the price of the bond

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#### clairegirl

##### the name's Anne!
no way am i paying 80 bucks on a financial calculator.. my friend bought one just recently and it doesn't even calculate the yield.. that or she hasn't followed instructions properly.

Either way .. trial and error isn't so bad

#### sukiyaki

##### emptiness
Kutay said:
I was wondering if people are going to bring in a financial calcualtor?

I was thinking of borrowing to save time for that one question on cost of debt..
However if i cant get one can someone give me the best way to attack linear interpoliation?
they have linear interpolation in the exam this time?
oh ouch

#### Kutay

##### University
can anyone show me a trial and error approach?

#### Kutay

##### University
Hey i was wondering what everyone thinks to descriptive and calu question on fisher will be.?

i think the descriptive will be what is the FST?

and descriptive one they gave us in practive exam?

#### Kutay

##### University
Where do we get the 253 cheat sheet from its not online?

#### hammond

##### Cricket Fanatic
End-of-semester (Final) Examination (FEX) thread is where the cheat sheet is

#### clairegirl

##### the name's Anne!
hey i definately think that the the question from the practice exam will be in there...

and the theory ... could range from the assumptions and showing how it would work... include diagrams i think

#### clairegirl

##### the name's Anne!
kutay, give us a question that requires trial and error and i'll take a stab at it

#### Monstar

##### Member
Take a start using the CP rate,
1. If the bond is selling at a premium then the Coupon rate> yield to maturity. So you will start lower then the coupon.
2. If the bond is selling at a discount then the coupon rate < yield to maturity. So will you start higher then the coupon.