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 rate on $5 million for six months.
How many contracts are required?
A. 5
B. 10
C. 15
D. 20
The risk-free rate is 5% and the expected return on a non-dividend-paying stock is 12%.
Which of the following is a way of valuing a derivative?
A. Assume that the expected growth rate for the stock price is 17% and discount the
expected payoff at 12%
B. Assuming that the expected growth rate for the stock price is 5% and discounting the
expected payoff at 12%
C. Assuming that the expected growth rate for the stock price is 5% and discounting the
expected payoff at 5%
D. Assuming that the expected growth rate for the stock price is 12% and discounting
the expected payoff at 5%
An investor has exchange-traded put options to sell 100 shares for $20. There is a $1
cash dividend. Which of the following is then the position of the investor?
A. The investor has put options to sell 100 shares for $20
B. The investor has put options to sell 100 shares for $19
C. The investor has put options to sell 105 shares for $19
D. The investor has put options to sell 105 shares for $19.05
The delta of a call option on a non-dividend-paying stock is 0.4. What is the delta of the
corresponding put option?
A. -0.4
B. 0.4
C. -0.6
D. 0.6
When the time to maturity increases with all else remaining the same, which of the
following is true?
A. European options always increase in value
B. The value of European options either stays the same or increases
C. There is no effect on European option values
D. European options are liable to increase or decrease in value
If the volatility for a portfolio is 20% per year, what is the volatility per quarter?
A. 20%
B. 10%
C. 5%
D. 2%
The current price of a non-dividend-paying stock is $30. Over the next six months it is
expected to rise to $36 or fall to $26. Assume the risk-free rate is zero. An investor sells
call options with a strike price of $32. What is the value of each call option?
A. $1.6
B. $2.0
C. $2.4
D. $3.0
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. Which of the following is necessary to hedge the position?
A. Buy 0.2 shares for each option purchased
B. Sell 0.2 shares for each option purchased
C. Buy 0.8 shares for each option purchased
D. Sell 0.8 shares for each option purchased
Which of the following is NOT an option open to the party with a short position in the
Treasury bond futures contract?
A. The ability to deliver any of a number of different bonds
B. The wild card play
C. The fact that delivery can be made any time during the delivery month
D. The interest rate used in the calculation of the conversion factor
Which of the following is true?
A. When interest rates in the economy increase, all bond prices increase
B. As its coupon increases, a bond’s price decreases
C. Longer maturity bonds are always worth more that shorter maturity bonds when the
coupon rates are the same
D. None of the above
Which of the following are true?
A. Futures options are usually European
B. Futures options are usually American
C. Both American and European futures options trade actively are exchanges
D. Both American and European futures options trade actively in the OTC market
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
When the stock price is 20 and the present value of dividends is 2, which of the
following is the recommended way of constructing a tree?
A. Draw a tree for an initial stock price of 20 and subtract the present value of future
dividends at each node
B. Draw a tree for an initial stock price of 22 and subtract the present value of future
dividends at each node
C. Draw a tree with an initial stock price of 18 and add the present value of future
dividends at each node
D. Draw a tree with an initial stock price of 18 and add 2 at each node
Which of the following is true of a box spread?
A. It is a package consisting of a bull spread and a bear spread
B. It involves two call options and two put options
C. It has a known value at maturity
D. All of the above
At what interest rate does a government borrow in its own currency?
A. Treasury rate
B. LIBOR
C. LIBID
D. Repo rate
An investor has earned 2%, 12% and -10% on equity investments in successive years
(annually compounded). This is equivalent to earning which of the following annually
compounded rates for the three year period.
A. 1.33%
B. 1.23%
C. 1.13%
D. 0.93%
Which of the following is true of the 99.9% value at risk?
A. There is 1 chance in 10 that the loss will be greater than the value of risk
B. There is 1 chance in 100 that the loss will be greater than the value of risk
C. There is 1 chance in 1000 that the loss will be greater than the value of risk
D. None of the above
In a LIBOR-in-arrears swap, which of the following is true?
A. The floating payment made on a date is the LIBOR rate on the previous payment
date
B. The floating payment on a date is the LIBOR rate two payment dates ago
C. The floating payment on a date is the LIBOR rate on that date
D. The floating payment on a date is the LIBOR rate on that date only when it is higher
than the LIBOR rate on the previous payment date
The price of a stock is $64. A trader buys 1 put option contract on the stock with a strike
price of $60 when the option price is $10. When does the trader make a profit?
A. When the stock price is below $60
B. When the stock price is below $64
C. When the stock price is below $54
D. When the stock price is below $50