The standard deviation of the values of an option calculated using 10,000 Monte Carlo
trials is 4.5. The average of the values is 20. What is the standard error of this as an
estimate of the option price?
A. 4.5
B. 0.45
C. 0.045
D. 0.0045
Which of the following describes what a company should do to create a range forward
contract in order to hedge foreign currency that will be received?
A. Buy a put and sell a call on the currency with the strike price of the put higher than
that of the call
B. Buy a put and sell a call on the currency with the strike price of the put lower than
that of the call
C. Buy a call and sell a put on the currency with the strike price of the put higher than
that of the call
D. Buy a call and sell a put on the currency with the strike price of the put lower than
that of the call
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%
Which of the following is NOT true
A. A call option gives the holder the right to buy an asset by a certain date for a certain
price
B. A put option gives the holder the right to sell an asset by a certain date for a certain
price
C. The holder of a call or put option must exercise the right to sell or buy an asset
D. The holder of a forward contract is obligated to buy or sell an asset
What is the recommended way of making volatility a function of time in a Cox, Ross,
Rubinstein tree?
A. Make u a function of time
B. Make p a function of time
C. Make u and p a function of time
D. Make the lengths of the time steps unequal
What does N(x) denote?
A. The area under a normal distribution from zero to x
B. The area under a normal distribution up to x
C. The area under a normal distribution beyond x
D. The area under the normal distribution between –x and x
What does gamma measure?
A. The rate of change of delta with the asset price
B. The rate of change of the portfolio value with the passage of time
C. The sensitivity of a portfolio value to interest rate changes
D. None of the above
Exotic options
A. Can always be hedged just as easily as regular options
B. Are easier to hedge than regular options
C. Are more difficult to hedge than regular options
D. Are sometimes easier and sometimes more difficult to hedge than regular options.
Consider a European one-year call futures option and a European one-year put futures
options when the futures price equals the strike price. Which of the following is true?
A. The call futures option is worth more than the put futures option
B. The put futures option is worth more than the call futures option
C. The call futures option is sometimes worth more and sometimes worth less than the
put futures option
D. The call futures option is worth the same as the put futures option
A variable x starts at zero and follows the generalized Wiener process
dx = a dt + b dz
where time is measured in years. During the first two years a=3 and =4. During the
following three years a=6 and =3. What is the expected value of the variable at the end
of 5 years
A. 16
B. 20
C. 24
D. 30
For a futures contract trading in April 2012, the open interest for a June 2012 contract,
when compared to the open interest for Sept 2012 contracts, is usually
A. Higher
B. Lower
C. The same
D. Equally likely to be higher or lower
Which of the following was true after 2005?
A. The options never had any affect on a company’s financial statements
B. The value of options which were at-the-money when issued had to be expensed on
the income statement
C. The value of options which were at-the-money when issued had to be reported in the
notes to the financial statements
D. Options which were at-the-money when issued did not affect a company’s financial
statements
Which of the following is NOT true?
A. Black’s model can be used to value an American-style option on futures
B. Black’s model can be used to value a European-style option on futures
C. Black’s model can be used to value a European-style option on spot
D. Black’s model is widely used by practitioners