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A company has a $36 million portfolio with a beta of 1.2. The futures price for a contract on an index is 900. Futures contracts on $250 times the index can be traded. What trade is necessary to increase beta […]

As inventories of a commodity decline, which of the following is true? A. The one-year futures price as a percentage of the spot price increases B. The one-year futures price as a percentage of the spot price decreases C. The […]

What is the size of one option contract on the S&P 500? A. 250 times the index B. 100 times the index C. 50 times the index D. 25 times the index The six-month zero rate is 8% per annum […]

Which of the following is NOT true? A. A volatility surface provides more information than a single volatility smile B. A volatility surface is used to determine the implied volatility of an option that does not trade actively C. A […]

On a certain day the highest temperature is 77 degrees and the lowest temperature is 61 degrees. What is the day’s CDD? A. 5 B. 12 C. 4 D. 0 For what range of losses is the equity tranche of […]

On a certain day the highest temperature is 77 degrees and the lowest temperature is 61 degrees. What is the day’s HDD? A. 5 B. 12 C. 4 D. 0 A trader uses 3-month Eurodollar futures to lock in a […]

When LIBOR is used as the discount rate: A. The value of a swap is worth zero immediately after a payment date B. The value of a swap is worth zero immediately before a payment date C. The value of […]

Which of the following is true for a long position in an option A. Both gamma and vega are negative B. Gamma is negative and vega is positive C. Gamma is positive and vega is negative D. Both gamma and […]

Which of the following best describes the term ‘spot price’ A. The price for immediate delivery B. The price for delivery at a future time C. The price of an asset that has been damaged D. The price of renting […]

Which of the following is NOT true? A. Gold and silver are investment assets B. Investment assets are held by significant numbers of investors for investment purposes C. Investment assets are never held for consumption D. The forward price of […]

Which of the following is true as time to maturity increases? A. The volatility smile for currency options tends to become more pronounced B. The volatility smile for currency options tends to become less pronounced C. The volatility smile for […]

Which of the following is true for u in a Cox-Ross-Rubinstein binomial tree? A. It depends on the interest rate and the volatility B. It depends on the volatility but not the interest rate C. It depends on the interest […]

AIG lost money because A. It bought tranches created from mortgages B. It invested heavily in real estate C. It invested heavily in the stock market D. It insured AAA tranches of ABS CDOs A company due to pay a […]

Which of the following is true? A. The optimal hedge ratio is the slope of the best fit line when the spot price (on the y-axis) is regressed against the futures price (on the x-axis). B. The optimal hedge ratio […]

The current price of a non-dividend paying stock is $30. Use a two-step tree to value a European call option on the stock with a strike price of $32 that expires in 6 months. Each step is 3 months, the […]

Duration matching immunizes a portfolio against A. Any parallel shift in the yield curve B. All shifts in the yield curve C. Changes in the steepness of the yield curve D. Small parallel shifts in the yield curve How many […]

A volatility surface is a table showing the relationship between which of the following A. Implied volatility, time to maturity, and strike price B. Implied volatility, historical volatility, and time to maturity C. Historical volatility, strike price, and time to […]

A floating-rate lender wants to use a collar as a hedge. Which of the following is appropriate? A. Buy a cap and sell a floor B. Buy a cap and buy a floor C. Sell a cap and sell a […]

Which of the following is NOT true about call and put options: A. An American option can be exercised at any time during its life B. A European option can only be exercised only on the maturity date C. Investors […]

Which of the following is a use of a currency swap? A. To exchange an investment in one currency for an investment in another currency B. To exchange borrowing in one currency for borrowings in another currency C. To take […]

In a floor with semiannual reset dates, the floor rate is 3.5% per annum and the notional principal is $1 million. Suppose that the LIBOR rate is 3% per annum for a particular 6-month period. What is the approximate payoff […]

Which of the following describes a cliquet option A. An option to exchange one asset for another B. An instrument when the holder can choose between several alternative options C. An option on an option with predetermined strike prices for […]

A one-year forward contract is an agreement where A. One side has the right to buy an asset for a certain price in one year’s time. B. One side has the obligation to buy an asset for a certain price […]

What is the number of companies underlying the iTraxx index? A. 50 B. 75 C. 100 D. 125 A speculator can choose between buying 100 shares of a stock for $40 per share and buying 1000 European call options on […]

An August CDD weather option is offered on the cumulative monthly CDD at an Atlanta weather station. An investor has a long call with a strike price of 375 and a short call with a strike price of 400. The […]