Which of the following is true about a futures option and a spot option on the same
underlying asset when they have the same strike price? The expiration dates of the two
options and the futures are all the same.
A. A European call spot option and an American call futures option are equivalent
B. An American call spot option and a European call futures option are equivalent
C. A European put spot option and European put futures option are equivalent
D. An American put spot option and American put futures option are equivalent
Index put options are used to provide protection against the value of the portfolio
falling below a certain level. Which of the following is true as the beta of the portfolio
increases?
A. The cost of hedging increases
B. The required options have a higher strike price
C. The number of options required increases
D. All of the above
Which of the following is true?
A. Cash flow mapping is a way of calculating the present value of cash flows
B. Cash flow mapping is used to handle interest rate exposures in the model building
approach
C. Cash flow mapping is used to handle interest rate exposures in the historical
simulation approach
D. None of the above
Margin accounts have the effect of
A. Reducing the risk of one party regretting the deal and backing out
B. Ensuring funds are available to pay traders when they make a profit
C. Reducing systemic risk due to collapse of futures markets
D. All of the above
Which of the following is true for a consumption commodity?
A. There is no limit to how high or low the futures price can be, except that the futures
price cannot be negative
B. There is a lower limit to the futures price but no upper limit
C. There is an upper limit to the futures price but no lower limit, except that the futures
price cannot be negative
D. The futures price can be determined with reasonable accuracy from the spot price
and interest rates
A trader creates a long butterfly spread from options with strike prices $60, $65, and
$70 by trading a total of 400 options. The options are worth $11, $14, and $ What is the
maximum net gain (after the cost of the options is taken into account)?
A. $100
B. $200
C. $300
D. $400
Which of the following would be described by the term “liar loan”?
A. A situation where the lender concealed information from the borrower
B. A situation where the lender lied to the borrower about the interest rate
C. A situation where the borrower lied about the his or her income
D. None of the above
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
What does the shape of the volatility smile reveal about call options on a currency?
A. Options close-to-the-money have the lowest implied volatility
B. Options deep-in-the-money have a relatively high implied volatility
C. Options deep-out-of-the-money have a relatively high implied volatility
D. All of the above
Which of the following is true of Merton’s model:
A. The strike price is the market value of the debt
B. The strike price is the market value of the equity
C. The strike price is the book value of the equity
D. The strike price is the face value of the debt
What are teaser rates
A. Interest rates that appear lower than they are
B. Interest rates that depend on LIBOR
C. Interest rates on mortgages with a very long amortization period
D. Interest rates that apply only for the first two or three years
A portfolio manager in charge of a portfolio worth $10 million is concerned that stock
prices might decline rapidly during the next six months and would like to use put
options on an index to provide protection against the portfolio falling below $9.5
million. The index is currently standing at 500 and each contract is on 100 times the
index. What position is required if the portfolio has a beta of 1?
A. Short 200 contracts
B. Long 200 contracts
C. Short 100 contracts
D. Long 100 contracts
The bonds that can be delivered in a Treasury bond futures contract are
A. Assets that provide no income
B. Assets that provide a known cash income
C. Assets that provide a known yield
D. None of the above
A floating-for-fixed currency swap is equivalent to
A. Two interest rate swaps, one in each currency
B. A fixed-for-fixed currency swap and one interest rate swap
C. A fixed-for-fixed currency swap and two interest rate swaps, one in each currency
D. None of the above