The six month and one-year rates are 3% and 4% per annum with semiannual
compounding. Which of the following is closest to the one-year par yield expressed
with semiannual compounding?
A. 3.99%
B. 3.98%
C. 3.97%
D. 3.96%
How many parameters are necessary to define a GARCH (1,1) model
A. 1
B. 2
C. 3
D. 4
Which of the following is true of Merton’s model:
A. The equity is a call option on the assets
B. The assets are a call option on the debt
C. The debt is a call option on the equity
D. The equity is a call option on the debt
Since the credit crisis that started in 2007 which of the following have derivatives
traders used as the risk-free discount rate for collateralized transactions
A. The Treasury rate
B. The LIBOR rate
C. The repo rate
D. The overnight indexed swap rate
A European at-the-money call option on a currency has four years until maturity. The
exchange rate volatility is 10%, the domestic risk-free rate is 2% and the foreign
risk-free rate is 5%. The current exchange rate is 1.2000. What is the value of the
option?
A. 0.98N(0.25)-1.11(0.05)
B. 0.98N(-0.3)-1.11N(-0.5)
C. 0.98N(-0.5)-1.11N(-0.7)
D. 0.98N(0.10)-1.11N(0.06)
Which of the following cannot be valued by Monte Carlo simulation
A. European options
B. American options
C. Asian options (i.e., options on the average stock price)
D. An option which provides a payoff of $100 if the stock price is greater than the strike
price at maturity
How much is a basis point?
A. 1.0%
B. 0.1%
C. 0.01%
D. 0.001%
Which of the following is true when the tails of a future foreign currency distribution
are compared with those of a lognormal distribution with the same mean and standard
deviation?
A. The left tail and right tail are thinner
B. The left tail is thinner and the right tail is fatter
C. The right tail is thinner and the left tail is fatter
D. Both tails are fatter
Which of the following describes European options?
A. Sold in Europe
B. Priced in Euros
C. Exercisable only at maturity
D. Calls (there are no European puts)
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