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 one-year futures price as a percentage of the spot price stays the same
D. Any of the above can happen
The spot price of an investment asset that provides no income is $30 and the risk-free
rate for all maturities (with continuous compounding) is 10%. What is the three-year
forward price?
A. $40.50
B. $22.22
C. $33.00
D. $33.16
Which of the following best describes ‘stack and roll’?
A. Creates long-term hedges from short term futures contracts
B. Can avoid losses on futures contracts by entering into further futures contracts
C. Involves buying a futures contract with one maturity and selling a futures contract
with a different maturity
D. Involves two different exposures simultaneously
Interest rates are zero. A European call with a strike price of $50 and a maturity of one
year is worth $6. A European put with a strike price of $50 and a maturity of one year is
worth $7. The current stock price is $49. Which of the following is true?
A. The call price is high relative to the put price
B. The put price is high relative to the call price
C. Both the call and put must be mispriced
D. None of the above
The current price of a non-dividend-paying stock is $40. Over the next year it is
expected to rise to $42 or fall to $37. An investor buys put options with a strike price of
$41. What is the value of each option? The risk-free interest rate is 2% per annum with
continuous compounding.
A. $3.93
B. $2.93
C. $1.93
D. $0.93
Which of the following is true?
A. The delta of a European put equals minus the delta of a European call
B. The delta of a European put equals the delta of a European call
C. The gamma of a European put equals minus the gamma of a European call
D. The gamma of a European put equals the gamma of a European call
Which of the following defines the vesting period?
A. The period during which employee stock options can be exercised
B. The period during which the options are issued
C. The period during which the strike price of the options equals the stock price
D. The period during which employee stock options cannot be exercised
Which of following is applicable to corporate bonds in the United States?
A. Actual/360
B. Actual/Actual
C. 30/360
D. Actual/365
What is the rating of the companies underlying the iTraxx index?
A. A or above
B. BBB or above
C. BB or below
D. BBB or below
At the maturity of a bond option, it is estimated that the underlying bond will have a
duration of 6 years and a yield of 5%. The forward yield volatility is quoted as 25%.
What is the volatility of the forward bond price?
A. 3%
B. 30%
C. 20.8%
D. 7.5%
When the Black-Scholes-Merton and binomial tree models are used to value an option
on a non-dividend-paying stock, which of the following is true?
A. The binomial tree price converges to a price slightly above the
Black-Scholes-Merton price as the number of time steps is increased
B. The binomial tree price converges to a price slightly below the
Black-Scholes-Merton price as the number of time steps is increased
C. Either A or B can be true
D. The binomial tree price converges to the Black-Scholes-Merton price as the number
of time steps is increased
A portfolio manager in charge of a portfolio worth $10 million is concerned that the
market might decline rapidly during the next six months and would like to use put
options on an index to provide protection against the portfolio falling below $9.5
million. The index is currently standing at 500 and each contract is on 100 times the
index. What should the strike price of options on the index be the portfolio has a beta of
0.5? Assume that the risk-free rate is 10% per annum and there are no dividends.
A. 400
B. 410
C. 420
D. 425
Which of the following is true about a long forward contract
A. The contract becomes more valuable as the price of the asset declines
B. The contract becomes more valuable as the price of the asset rises
C. The contract is worth zero if the price of the asset declines after the contract has been
entered into
D. The contract is worth zero if the price of the asset rises after the contract has been
entered into
Which of the following were introduced before the credit crisis that started in 2007
A. Basel II
B. Dodd-Frank
C. Basel III
D. Requirements for living wills
If the volatility of a non-dividend paying stock is 20% per annum and a risk-free rate is
5% per annum, which of the following is closest to the Cox, Ross, Rubinstein parameter
u for a tree with a three-month time step?
A. 1.05
B. 1.07
C. 1.09
D. 1.11
A stock provides an expected return of 10% per year and has a volatility of 20% per
year. What is the expected value of the continuously compounded return in one year?
A. 6%
B. 8%
C. 10%
D. 12%