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If the volatility implied from an at-the-money put stock option were used to price other
put options on the stock, which of the following would be true?
A. Out-of-the money and in-the-money prices would be too high
B. Out-of-the money and in-the-money prices would be too low
C. Out-of-the-money option prices would be too high and in-the-money option prices
would be too low
D. Out-of-the-money option prices would be too low and in-the-money option prices
would be too high
The spot price of an investment asset is $30 and the risk-free rate for all maturities is
10% with continuous compounding. The asset provides an income of $2 at the end of
the first year and at the end of the second year. What is the three-year forward price?
A. $19.67
B. $35.84
C. $45.15
D. $40.50
Which of the following is the put-call parity result for a non-dividend-paying stock?
A. The European put price plus the European call price must equal the stock price plus
the present value of the strike price
B. The European put price plus the present value of the strike price must equal the
European call price plus the stock price
C. The European put price plus the stock price must equal the European call price plus
the strike price
D. The European put price plus the stock price must equal the European call price plus
the present value of the strike price
Which of the following is NOT true about duration?
A. It equals the years-to-maturity for a zero coupon bond
B. It equals the weighted average of payment times for a bond, where weights are
proportional to the present value of payments
C. Equals the weighted average of individual bond durations for a portfolio, where
weights are proportional to the present value of bond prices
D. The prices of two bonds with the same duration change by the same percentage
amount when interest rate moves up by 100 basis points
Why do traders use volatility smiles for pricing options?
A. To allow for non-lognormality of the probability distribution of future asset price
B. Because it is consistent with recent market moves
C. As a tool to reflect their views about extreme market moves
D. Because extreme market moves are always more likely than Black-Scholes-Merton
assumes
When an employee leaves the company which of the following is usually true?
A. All outstanding employee stock options are forfeited
B. Out-of the money employee stock options are forfeited
C. All options which have vested are forfeited
D. All options are retained
For what range of losses is the equity tranche of iTraxx (or CDX NA IG) responsible?
A. 0 to 10%
B. 0 to 7%
C. 0 to 6%
D. 0 to 3%
There are two types of regular options (calls and puts). How many types of barrier
options are there?
A. Two
B. Four
C. Six
D. Eight
