Which of the following survived the crisis without declaring bankruptcy or being taken
over by another financial institution?
A. Bear Stearns
B. Morgan Stanley
C. Lehman Brothers
D. Merrill Lynch
When the stock price is 20 and the present value of dividends is 2, which of the
following is the recommended way of constructing a tree?
A. Draw a tree for an initial stock price of 20 and subtract the present value of future
dividends at each node
B. Draw a tree for an initial stock price of 22 and subtract the present value of future
dividends at each node
C. Draw a tree with an initial stock price of 18 and add the present value of future
dividends at each node
D. Draw a tree with an initial stock price of 18 and add 2 at each node
Which of the following is true for a long position in an option
A. Both gamma and vega are negative
B. Gamma is negative and vega is positive
C. Gamma is positive and vega is negative
D. Both gamma and vega are positive
The zero curve is downward sloping. Define X as the 1-year par yield, Y as the 1-year
zero rate and Z as the forward rate for the period between 1 and 1.5 year. Which of the
following is true?
A. X is less than Y which is less than Z
B. Y is less than X which is less than Z
C. X is less than Z which is less than Y
D. Z is less than Y which is less than X
Which of the following is NOT usually true about employee stock options?
A. There is a vesting period
B. They can be sold to other employees
C. They are often at-the-money when issued
D. Their value is currently a charge to the income statement
Which of the following describes the five-year swap rate?
A. The fixed rate of interest which a swap market maker is prepared to pay in exchange
for LIBOR on a 5-year swap
B. The fixed rate of interest which a swap market maker is prepared to receive in
exchange for LIBOR on a 5-year swap
C. The average of A and B
D. The higher of A and B
For what value of the correlation between two Wiener processes is the sum of the
processes also a Wiener process?
A. 0.5
B. -0.5
C. 0
D. 1
Which of the following is true
A. The default probability per year for a company always increases as we look further
ahead
B. The default probability per year for a company always decreases as we look further
ahead
C. Sometimes A is true and sometimes B is true
D. The default probability per year is roughly constant for most companies
Which of the following is NOT true?
A. A volatility surface provides more information than a single volatility smile
B. A volatility surface is used to determine the implied volatility of an option that does
not trade actively
C. A volatility surface can be determined from a single volatility smile using
interpolation
D. A volatility surface incorporates information about options with different maturity
dates
Which of the following describes contango?
A. The futures price is below the expected future spot price
B. The futures price is below today’s spot price
C. The futures price is a declining function of the time to maturity
D. The futures price is above the expected future spot price
Which of the following is equivalent to a long position in a European call option?
A. A short position in a cash-or-nothing put option plus a long position in an
asset-or-nothing put option
B. A long position in an asset-or-nothing put option plus a long position in a
cash-or-nothing put option
C. A long position in an asset-or-nothing call option plus a long position in a
cash-or-nothing call option
D. A long position in an asset-or-nothing call option plus a short position in a
cash-or-nothing call option
Static options replication for a portfolio of American options on a stock involves
A. Finding a hedge portfolio to match daily changes
B. Finding a hedge portfolio to match values on a boundary that is certain to be reached
C. Finding a hedge portfolio to match values at one particular time
D. Constructing a hedge taking both gamma and delta into account
Which of the following is true
A. Both forward and futures contracts are traded on exchanges.
B. Forward contracts are traded on exchanges, but futures contracts are not.
C. Futures contracts are traded on exchanges, but forward contracts are not.
D. Neither futures contracts nor forward contracts are traded on exchanges.
A company can invest funds for five years at LIBOR minus 30 basis points. The
five-year swap rate is 3%. What fixed rate of interest can the company earn by using the
swap?
A. 2.4%
B. 2.7%
C. 3.0%
D. 3.3%
A portfolio is worth $24,000,000. The futures price for a Treasury note futures contract
is 110 and each contract is for the delivery of bonds with a face value of $100,000. On
the delivery date the duration of the bond that is expected to be cheapest to deliver is 6
years and the duration of the portfolio will be 5.5 years. How many contracts are
necessary for hedging the portfolio?
A. 100
B. 200
C. 300
D. 400