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Risk-based pricing is a methodology adopted by many lenders in the mortgage and financial services industries. It has been in use for many years as lenders try to measure loan risk in terms of interest rates and other fees. The interest rate on a loan is determined not only by the time value of money, but also by the lender's estimate of the probability that the borrower will default on the loan. A borrower who the lender thinks is less likely to default will be offered a better (lower) interest rate. This means that different borrowers will pay different rates. The lender may consider a variety of factors in assessing the probability of default. These factors might be characteristics of the individual borrower, like the borrower's credit score or employment status. These factors might also be characteristics of the loan; for example, a mortgage lender might offer different rates to the same borrower, depending on whether that borrower wished to buy a single-family house or a condominium. From Wikipedia under the
GNU Free Documentation License What is the maximum you would be willing to pay for this put option? Q. You own a stock currently trading at $50. The annual volatility of the stock based on historical prices is 20%. Yesterday, the Fed issued a warning to small investors suggesting that the stock market s volatility has doubled due to oil price uncertainty. The uncertainty is expected to last 6 months, after which normal times will resume. Concerned about the wealth of your investment, you decide to invest in a 6 month European put option with an exercise price of $45. Assume that the annual risk free rate is 5%. Asked by Johny - Sat Apr 19 17:31:51 2008 - - 2 Answers - 0 Comments A. First a few comments from the real world. (1) I am not a fan of buying protective puts so I probably would not buy them. (2) The dividends expected prior to expiration need to be included fo determine a "fair" price, but they were not specified in the question. I will assume there are no dividends expected. (3) The price at which I am willing to trade an option (buy or sell) depends on my prediction of what future volatility will be, not the Fed's predicition or the historical volatility. (4) If I believed the Fed's predicition I would attempt to make a profit by opening a spread designed to profit for the expected changes in volatility. Since none of that helps answer your question, here are some theoretical replies. If I thought… [cont.] Answered by zman492 - Sat Apr 19 19:59:48 2008 Is the CURRENT PRICE OF OIL based on the FUTURE EXPECTATION ON THE OIL MARKET? Q. Since we our capitalism provides a Commodity Futures Market in order to allow investors to speculate on the future markets of oil supplies (which is advantageous since it averages out supply risk over a longer period of time instead of shorter durations more susceptible to sharp spikes). If we think there will be MORE oil 10 years from now, we would see prices drop NOW? If we think there will be LESS oil 10 years from now, we would see prices rise NOW? Isn't that how it works? It been a whole since I took economincs, but isn't that how it all works? Does Obama and Pelosi know this? [ [ Please STAR this, as I'd like as many economic experts to see this as possible ] ] Isn't it reasonable to expect that if elected leaders will not do… [cont.] Asked by Ophelia - Thu Sep 4 10:13:05 2008 - - 6 Answers - 0 Comments A. Yes it is. We all saw a drop as soon as Bush supported off shore drilling. But the Democrats don't want that, they want to see increased prices, strictly for political gain. Go figure. Answered by suthrnlyts - Thu Sep 4 10:20:03 2008 Which is it?
Q. A $1,000 par value bond has coupon rate of 7% and the coupon is paid semi-annually. The bond matures in 20 years and has a required rate of return of 10%. Compute the current price of this bond. a. $1,011.00 b. $1,000.00 c. $ 742.61 d. $1,199.22 e. $1,230.57 12. McIntire Corp. is considering the issue of $1,000 face value, 20 year, 9 percent coupon bonds. The bonds will make coupon payments on a semi-annual basis. It observes that bonds of Barrett Company are trading at $1079.31, have the same maturity date and pay an annual coupon of 10 percent. If the two bonds are expected to be similar in risk, what price will a bond of McIntire Corp. sell for? a. $1,000.00 b. $ 988.73 c. $1,079.31 d. $1,503.63 … [cont.] Asked by Ashley - Mon Apr 14 20:27:58 2008 - - 2 Answers - 0 Comments From Yahoo Answer Search: "risk based pricing"  news.google.com The Australian That revision would be based on an average of spot pricing over a defined previous period. For maybe three years the BHP Billiton boss has been pretty much ... Australia, China iron ore talks collapse AFP China gives ground to save iron ore deals; miners mum guardian.co.uk all 355 news articles » news.google.com SYS-CON Media (press release) These factors include, but are not limited to, the risk that the market for powerline communications products, including Intellon ICs, may not develop as ... and more » news.google.com PR-USA.net (press release) As of May 31, 2009, the Bank had a total risk - based capital ratio of 40.47%, a Tier 1 risk - based capital ratio of 40.50% and a Tier 1 core (leverage) ... From Google News Search: "risk based pricing" |
