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Hull: Fundamentals of Futures and Options Markets, Ninth Edition
Chapter 21: Interest Rate Options
Multiple Choice Test Bank
1. Which of the following is true?
A. A callable bond allows the lender to ask for the principal to be repaid early
B. A callable bond allows the borrower to repay the principal early
C. A callable bond is a bond with an embedded stock option
D. None of the above
2. Which of the following is true?
A. A puttable bond allows the lender to ask for the principal to be repaid early
B. A puttable bond allows the borrower to repay the principal early
C. A puttable bond is a bond with an embedded stock option
D. None of the above
3. Which of the following is true?
A. A swaption that gives the holder the right to pay fixed is equivalent to a call option on a
bond
B. A swaption that gives the holder the right to pay fixed is equivalent to a put option on a
bond
C. A swaption that gives the holder the right to pay fixed is equivalent to a put option on
one bond combined with a call option on another bond
D. None of the above
4. In a cap with quarterly reset dates, the cap rate is 3.5% per annum and the notional principal is
$1 million. Suppose that the LIBOR rate is 4.0% per annum for a particular 3-month period.
What is the approximate payoff at the end of the 3 months?
A. $10,000
B. $5,000
C. $2,500
D. $1,250
