The price of a stock on February 1 is $84. A trader buys 200 put options on the stock
with a strike price of $90 when the option price is $10. The options are exercised when
the stock price is $85. The trader€s net profit or loss is
A. Loss of $1,000
B. Loss of $2,000
C. Gain of $200
D. Gain of $1000
It is May 1. The quoted price of a bond with an Actual/Actual (in period) day count and
12% per annum coupon (paid semiannually) in the United States is 105. It has a face
value of 100 and pays coupons on April 1 and October 1. What is the cash price?
A. 106.00
B. 106.02
C. 105.98
D. 106.04
The values of a stock price at the end of the second time step are $80, $100, $125. The
corresponding values of an option are $0, $5, and $20 respectively. What is an estimate
of gamma?
A. 0.136
B. 0.146
C. 0.156
D. 0.166
When Black’s model used to value a European option on the spot price of an asset,
which of the following is NOT true?
A. It is necessary to know the futures or forward price for a contract maturing at the
same time as the option
B. It is not necessary to estimate income on the underlying asset
C. It is not necessary to know the risk-free rate
D. The underlying asset can be an investment or a consumption asset
Which of the following is true about a CDS?
A. Restructuring is never a credit event
B. Restructuring is always a credit event
C. Certain types of restructuring qualify as credit events but others do not
D. Sometimes a CDS is defined so that restructuring is a credit event and sometimes it
is not
Which of the following gives a random sample from a standard normal distribution in
Excel?
A. =NORMSINV()
B. =NORMSINV(RAND())
C. =RND(NORMSINV())
D. =RAND()
Which of the following is true?
A. Principals are not usually exchanged in a currency swap
B. The principal amounts usually flow in the opposite direction to interest payments at
the beginning of a currency swap and in the same direction as interest payments at the
end of the swap.
C. The principal amounts usually flow in the same direction as interest payments at the
beginning of a currency swap and in the opposite direction to interest payments at the
end of the swap.
D. Principals are not usually specified in a currency swap
The price of a stock on July 1 is $57. A trader buys 100 call options on the stock with a
strike price of $60 when the option price is $2. The options are exercised when the
stock price is $65. The trader€s net profit is
A. $700
B. $500
C. $300
D. $600
A futures price is currently 40 cents. It is expected to move up to 44 cents or down to 34
cents in the next six months. The risk-free interest rate is 6%. What is the probability of
an up movement in a risk-neutral world?
A. 0.4
B. 0.5
C. 0.72
D. 0.6
Which of the following is true?
A. An employee stock option is usually held to maturity
B. An employee stock option tends to be exercised earlier than a traded option with the
same terms
C. An employee stock options tends to be exercised later than a traded option with the
same terms
D. Employee stock options are usually exercised as early as possible
Which of the following is a way of extending the Black-Scholes-Merton formula to
value a European call option on a stock paying a single dividend?
A. Reduce the maturity of the option so that it equals the time of the dividend
B. Subtract the dividend from the stock price
C. Add the dividend to the stock price
D. Subtract the present value of the dividend from the stock price
Which of the following is true of the 99.9% value at risk?
A. There is 1 chance in 10 that the loss will be greater than the value of risk
B. There is 1 chance in 100 that the loss will be greater than the value of risk
C. There is 1 chance in 1000 that the loss will be greater than the value of risk
D. None of the above
When a stock price, S, follows geometric Brownian motion with mean return m and
volatility what is the process follows by Xwhere X = ln S.
A. dX = m dt + s dz
B. dX = (m-r) dt + s dz
C. dX = (m€-s2) dt + s dz
D. dX = (m – 2/2) dt + s dz
The implied volatilities for strike prices of 1.1 and 1.2 when the time to maturity is 6
months are 20% and 22%. The implied volatilities for strike prices of 1.1 and 1.2 when
the time to maturity is 1 year are 18.8% and 2%. Using linear interpolation, what is the
implied volatility for a strike price of 1.12 and a time to maturity of 10 months?
A. 19.24%
B. 19.52%
C. 20.48%
D. 19.96%
A volatility swap is
A. An instrument that swaps the change in the value of a market variable for a fixed
amount
B. A swap involving an asset whose volatility is greater than a certain level
C. An exchange of the implied volatility of an option at a future time for a fixed
volatility
D. An exchange of the realized volatility of an asset for a fixed volatility
When the interest rate is 5% per annum with continuous compounding, which of the
following creates a principal protected note worth $1000?
A. A one-year zero-coupon bond plus a one-year call option worth about $59
B. A one-year zero-coupon bond plus a one-year call option worth about $49
C. A one-year zero-coupon bond plus a one-year call option worth about $39
D. A one-year zero-coupon bond plus a one-year call option worth about $29
The risk-free rate is 5% and the dividend yield on an index is 2%. Which of the
following is the delta with respect to the index for a one-year futures on the index?
A. 0.98
B. 1.05
C. 1.03
D. 1.02
In a shout call option the strike price is $30. The holder shouts when the asset price is
$40. What is the payoff from the option if the final asset price is $35?
A. $0
B. $5
C. $10
D. $15