The price of a stock is $67. A trader sells 5 put option contracts on the stock with a
strike price of $70 when the option price is $4. The options are exercised when the
stock price is $69. What is the trader€s net profit or loss?
A. Loss of $1,500
B. Loss of $500
C. Gain of $1,500
D. Loss of $1,000
An interest rate is 5% per annum with continuous compounding. What is the equivalent
rate with semiannual compounding?
A. 5.06%
B. 5.03%
C. 4.97%
D. 4.94%
How can a strip trading strategy be created?
A. Buy one call and one put with the same strike price and same expiration date
B. Buy one call and one put with different strike prices and same expiration date
C. Buy one call and two puts with the same strike price and expiration date
D. Buy two calls and one put with the same strike price and expiration date
Which of the following hypotheses was supported by empirical research covering the
1995 to 2002 period?
A. The grant date for executive stock options tended to be when the stock price is high
B. The grant date for executive stock options tended to be when the stock price is low
C. The grant date for executive stock options tended to be after a growth spurt in the
stock price
D. The was no relationship between the timing of grants and the stock price
In the Lehman bankruptcy the payoff to people who had bought CDS protection was
91.375% of the notional principal. How was this determined?
A. By calculation of the cheapest-to-deliver bond
B. By an auction process
C. By a calculation agent
D. By Lehman’s liquidators
Which of the following strategies makes no sense?
A. An employee exercises stock options early and sells the stock. No dividends are
expected
B. An employee exercises stock options early and keeps the stock. No dividends are
expected
C. An employee exercises stock options early and sells the stock. Dividends are
expected
D. An employee exercises stock options early and keeps the stock. Dividends are
expected.
The spot price of an asset is positively correlated with the market. Which of the
following would you expect to be true?
A. The forward price equals the expected future spot price.
B. The forward price is greater than the expected future spot price.
C. The forward price is less than the expected future spot price.
D. The forward price is sometimes greater and sometimes less than the expected future
spot price.
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
A company enters into a long futures contract to buy 1,000 units of a commodity for
$60 per unit. The initial margin is $6,000 and the maintenance margin is $4,000. What
futures price will allow $2,000 to be withdrawn from the margin account?
A. $58
B. $62
C. $64
D. $66
The price of a European call option on a non-dividend-paying stock with a strike price
of $50 is $6. The stock price is $51, the continuously compounded risk-free rate (all
maturities) is 6% and the time to maturity is one year. What is the price of a one-year
European put option on the stock with a strike price of $50?
A. $9.91
B. $7.00
C. $6.00
D. $2.09
At the end of Thursday, the estimated volatility of asset B is 1% per day. During Friday
asset B produces a return of zero. An EWMA model with lambda equal to 0.9 is used.
What is an estimate of the volatility of asset B at the end of Friday?
A. 0.98%
B. 0.95%
C. 0.92%
D. 0.90%
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
Which of the following is correct?
A. A calendar spread can be created by buying a call and selling a put when the strike
prices are the same and the times to maturity are different
B. A calendar spread can be created by buying a put and selling a call when the strike
prices are the same and the times to maturity are different
C. A calendar spread can be created by buying a call and selling a call when the strike
prices are different and the times to maturity are different
D. A calendar spread can be created by buying a call and selling a call when the strike
prices are the same and the times to maturity are different
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%
If a variable x follows the process dx = b dz where dz is a Wiener process, which of the
following is the process followed by y = exp(x).
A. dy = by dz
B. dy = 0.5b2y dt+by dz
C. dy = (y+0.5b2y) dt+by dz
D. dy = 0.5b2y dt+b dz
A CDS with a number of reference entities provides for each reference entity a payoff if
it defaults. What is a name for this CDS?
A. Binary CDS
B. Add-up Basket CDS
C. First-to-Default CDS
D. n-to-Default CDS
A call option on a non-dividend-paying stock has a strike price of $30 and a time to
maturity of six months. The risk-free rate is 4% and the volatility is 25%. The stock
price is $28. What is the delta of the option?
A. N(-0.1342)
B. N(-0.1888)
C. N(-0.2034)
D. N(-0.2241)
A hazard rate is 1% per annum. What is the probability of a default during the first two
years?
A. 2.00%
B. 2.02%
C. 1.98%
D. 1.96%
Which of the following is an example of an option class?
A. All calls on a certain stock
B. All calls with a particular strike price on a certain stock
C. All calls with a particular time to maturity on a certain stock
D. All calls with a particular time to maturity and strike price on a certain stock
A trader has a portfolio worth $5 million that mirrors the performance of a stock index.
The stock index is currently 1,250. Futures contracts trade on the index with one
contract being on 250 times the index. To remove market risk from the portfolio the
trader should
A. Buy 16 contracts
B. Sell 16 contracts
C. Buy 20 contracts
D. Sell 20 contracts