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 with semiannual compounding. The price of a
one-year bond that provides a coupon of 6% per annum semiannually is 97. What is the
one-year continuously compounded zero rate?
A. 8.02%
B. 8.52%
C. 9.02%
D. 9.52%
An interest rate is 6% per annum with annual compounding. What is the equivalent rate
with continuous compounding?
A. 5.79%
B. 6.21%
C. 5.83%
D. 6.18%
A European call and a European put on a stock have the same strike price and time to
maturity. At 10:00am on a certain day, the price of the call is $3 and the price of the put
is $4. At 10:01am news reaches the market that has no effect on the stock price or
interest rates, but increases volatilities. As a result the price of the call changes to $4.50.
Which of the following is correct?
A. The put price increases to $6.00
B. The put price decreases to $2.00
C. The put price increases to $5.50
D. It is possible that there is no effect on the put price
Which of the following is NOT true
A. When a CBOE call option on IBM is exercised, IBM issues more stock
B. An American option can be exercised at any time during its life
C. An call option will always be exercised at maturity if the underlying asset price is
greater than the strike price
D. A put option will always be exercised at maturity if the strike price is greater than the
underlying asset price.
Suppose that the domestic risk free rate is r and dividend yield on an index is q. How
should the put-call parity formula for options on a non-dividend-paying stock be
changed to provide a put-call parity formula for options on a stock index? Assume the
options last T years.
A. The stock price is replaced by the value of the index multiplied by exp(qT)
B. The stock price is replaced by the value of the index multiplied by exp(rT)
C. The stock price is replaced by the value of the index multiplied by exp(-qT)
D. The stock price is replaced by the value of the index multiplied by exp(rT)
Which of the following is an argument used by Keynes and Hicks?
A. If hedgers hold long positions and speculators holds short positions, the futures price
will tend to be higher than the expected future spot price
B. If hedgers hold long positions and speculators holds short positions, the futures price
will tend to be lower than the expected future spot price
C. If hedgers hold long positions and speculators holds short positions, the futures price
will tend to be lower than today’s spot price
D. If hedgers hold long positions and speculators holds short positions, the futures price
will tend to be higher than today’s spot price
Which of the following best describes a central clearing party
A. It is a trader that works for an exchange
B. It stands between two parties in the over-the-counter market
C. It is a trader that works for a bank
D. It helps facilitate futures trades
The zero curve is downward sloping. Define X as the 1-year par yield, Y as the 1-year
zero rate and Z as the forward rate for the period between 1 and 1.5 year. Which of the
following is true?
A. X is less than Y which is less than Z
B. Y is less than X which is less than Z
C. X is less than Z which is less than Y
D. Z is less than Y which is less than X
Which of the following could cause the volatility smile typically seen for foreign
currency options?
A. Currencies are traded in different countries at different times of the day
B. Currencies tend to have low volatilities
C. The activities of central banks causes occasional jumps in the exchange rate
D. Interest rates may be different in the two countries
Which of the following is true?
A. A futures option is settled daily
B. A futures-style option is settled daily
C. Both a futures option and a futures-style option are settled daily
D. Neither a futures option nor a futures-style option is settled daily
What is the quoted discount rate on a money market instrument?
A. The interest rate earned as a percentage of the final face value of a bond
B. The interest rate earned as a percentage of the initial price of a bond
C. The interest rate earned as a percentage of the average price of a bond
D. The risk-free rate used to calculate the present value of future cash flows from a
bond
A limit order
A. Is an order to trade up to a certain number of futures contracts at a certain price
B. Is an order that can be executed at a specified price or one more favorable to the
investor
C. Is an order that must be executed within a specified period of time
D. None of the above
When the volatility of an option increases from 30% to 32% the value of the option
increases from $2.00 to $2.40. What is the vega of the option
A. 0.20 dollars per %
B. 0.50 dollars per %
C. 0.80 dollars per %
D. 2.00 dollars per %
Which of the following is true when delta, but not gamma, is used in calculating VaR
for option positions?
A. VaR for a long call is too low and VaR for a long put is too low
B. VaR for a long call is too low and VaR for a long put is too high
C. VaR for a long call is too high and VaR for a long put is too low
D. VaR for a long call is too high and VaR for a long put is too high
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 must pay an upfront price (the option premium) for an option contract
D. The price of a call option increases as the strike price increases
Margin accounts have the effect of
A. Reducing the risk of one party regretting the deal and backing out
B. Ensuring funds are available to pay traders when they make a profit
C. Reducing systemic risk due to collapse of futures markets
D. All of the above
In a CDS with a notional principal of $100 million the reference entity defaults. What is
the payoff to the buyer of protection when the recovery rate is 30%?
A. $100 million
B. $30 million
C. $130 million
D. $70 million