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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 value of a
six-month put option with a strike price of 37 cents?
A. 3.00 cents
B. 2.91 cents
C. 1.16 cents
D. 1.20 cents
Which of the following increases the expected life of employee stock options?
A. An increase in the vesting period
B. An increase in employee turnover
C. A fast growth rate for the stock price
D. A tendency for employees to exercise earlier than in the past
In the corn futures contract a number of different types of corn can be delivered (with
price adjustments specified by the exchange) and there are a number of different
delivery locations. Which of the following is true
A. This flexibility tends increase the futures price.
B. This flexibility tends decrease the futures price.
C. This flexibility may increase and may decrease the futures price.
D. This flexibility has no effect on the futures price
Which of the following is NOT true?
A. Gold and silver are investment assets
B. Investment assets are held by significant numbers of investors for investment
purposes
C. Investment assets are never held for consumption
D. The forward price of an investment asset can be obtained from the spot price,
interest rates, and the income paid on the asset
For a European put option on an index, the index level is 1,000, the strike price is 1050,
the time to maturity is six months, the risk-free rate is 4% per annum, and the dividend
yield on the index is 2% per annum. How low can the option price be without there
being an arbitrage opportunity?
A. $50.00
B. $43.11
C. $29.21
D. $39.16
Which of the following involves most credit risk
A. Exchange trading
B. OTC trading with a central clearing party being used
C. OTC trading with bilateral clearing and collateral being posted
D. OTC trading with bilateral clearing and no collateral being posted
A stock price is 20, 22, 19, 21, 24, and 24 on six successive Fridays. Which of the
following is closest to the volatility per annum estimated from this data?
A. 50%
B. 60%
C. 70%
D. 80%
Which of the following is true for a call option on a stock worth $50
A. As a stock's expected return increases the price of the option increases
B. As a stock's expected return increases the price of the option decreases
C. As a stock's expected return increases the price of the option might increase or
decrease
D. As a stock's expected return increases the price of the option on the stock stays the
same
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 $18. What is
the maximum net loss (after the cost of the options is taken into account)?
A. $100
B. $200
C. $300
D. $400
You sell one December futures contracts when the futures price is $1,010 per unit. Each
contract is on 100 units and the initial margin per contract that you provide is $2,000.
The maintenance margin per contract is $1,500. During the next day the futures price
rises to $1,012 per unit. What is the balance of your margin account at the end of the
day?
A. $1,800
B. $3,300
C. $2,200
D. $3,700
Bootstrapping involves
A. Calculating the yield on a bond
B. Working from short maturity instruments to longer maturity instruments determining
zero rates at each step
C. Working from long maturity instruments to shorter maturity instruments determining
zero rates at each step
D. The calculation of par yields
A call option on a stock has a delta of 0.3. A trader has sold 1,000 options. What
position should the trader take to hedge the position?
A. Sell 300 shares
B. Buy 300 shares
C. Sell 700 shares
D. Buy 700 shares
Which of the following is true for u in a Cox-Ross-Rubinstein binomial tree?
A. It depends on the interest rate and the volatility
B. It depends on the volatility but not the interest rate
C. It depends on the interest rate but not the volatility
D. It depends on neither the interest rate nor the volatility
Which of the following is true
A. A derivative dealer's CVA is the counterparty's DVA and vice versa
B. Collateral posted by the counterparty reduces CVA
C. Collateral posted by the dealer reduces DVA
D. All of the above
Which of the following is true
A. OIS rates are less than the corresponding LIBOR/swap rates
B. OIS rates are greater than corresponding LIBOR/swap rates
C. OIS rates are sometimes greater and sometimes less than LIBOR/swap rates
D. OIS rates are equivalent to one-day LIBOR rates
As the barrier is observed more frequently, which of the following is true of a knock-out
option
A. It becomes more valuable
B. It becomes less valuable
C. There is no effect on value
D. It may become more valuable or less valuable
Which of the following are cash settled
A. All futures contracts
B. All option contracts
C. Futures on commodities
D. Futures on stock indices
