Which of the following is true of a non-recourse mortgage?
A. The house buyer, if unable to make payments, can lose all his or her possessions
B. The house buyer has an American-style put option on the house
C. The house buyer has a European-style put option on the house
D. The lender is less likely to lose money on the mortgage
Which of the following describes a 3-month overnight indexed swap (OIS)?
A. A fixed rate is exchanged for the overnight rate every day for three months
B. LIBOR is exchanged for the overnight rate every day for three months
C. The arithmetic average of overnight rates is exchanged for a fixed rate at the end of
three months
D. The geometric average of overnight rates is exchanged for a fixed rate at the end of
three months
Which of the following is a consumption asset?
A. The S&P 500 index
B. The Canadian dollar
C. Copper
D. IBM stock
In a CDS with a notional principal of $100 million the reference entity defaults. What is
the payoff to the buyer of protection when the recovery rate is 30%?
A. $100 million
B. $30 million
C. $130 million
D. $70 million
What should a trader do when the one-year forward price of an asset is too low?
Assume that the asset provides no income.
A. The trader should borrow the price of the asset, buy one unit of the asset and enter
into a short forward contract to sell the asset in one year.
B. The trader should borrow the price of the asset, buy one unit of the asset and enter
into a long forward contract to buy the asset in one year.
C. The trader should short the asset, invest the proceeds of the short sale at the risk-free
rate, enter into a short forward contract to sell the asset in one year
D. The trader should short the asset, invest the proceeds of the short sale at the risk-free
rate, enter into a long forward contract to buy the asset in one year
The spot price of an investment asset that provides no income is $30 and the risk-free
rate for all maturities (with continuous compounding) is 10%. What is the three-year
forward price?
A. $40.50
B. $22.22
C. $33.00
D. $33.16
The modified duration of a bond portfolio worth $1 million is 5 years. By
approximately how much does the value of the portfolio change if all yields increase by
5 basis points?
A. Increase of $2,500
B. Decrease of $2,500
C. Increase of $25,000
D. Decrease of $25,000
A stock price is $20. It has an expected return of 12% and a volatility of 25%. What is
the stock price that has a 2.5% chance of being exceeded in one day? (For this question
assume that there are 365 days in the year.)
A. $20.41
B. $20.51
C. $20.61
D. $20.71
Futures contracts trade with every month as a delivery month. A company is hedging
the purchase of the underlying asset on June 15. Which futures contract should it use?
A. The June contract
B. The July contract
C. The May contract
D. The August contract
Which of the following is NOT true
A. When a CBOE call option on IBM is exercised, IBM issues more stock
B. An American option can be exercised at any time during its life
C. An call option will always be exercised at maturity if the underlying asset price is
greater than the strike price
D. A put option will always be exercised at maturity if the strike price is greater than the
underlying asset price.
How can a strap trading strategy be created?
A. Buy one call and one put with the same strike price and same expiration date
B. Buy one call and one put with different strike prices and same expiration date
C. Buy one call and two puts with the same strike price and expiration date
D. Buy two calls and one put with the same strike price and expiration date