MET 388 | Course Paper

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Which of the following best describes the term ‘spot price’

A. The price for immediate delivery

B. The price for delivery at a future time

C. The price of an asset that has been damaged

D. The price of renting an asset

There are two types of regular options (calls and puts). How many types of compound

options are there?

A. Two

B. Four

C. Six

D. Eight

The current price of a non-dividend paying stock is $30. Use a two-step tree to value a

European put option on the stock with a strike price of $32 that expires in 6 months

with u = 1.1 and d = 0.9. Each step is 3 months, the risk free rate is 8%.

A. $2.24

B. $2.44

C. $2.64

D. $2.84

Which of the following was true after 2005?

A. The options never had any affect on a company’s financial statements

B. The value of options which were at-the-money when issued had to be expensed on

the income statement

C. The value of options which were at-the-money when issued had to be reported in the

notes to the financial statements

D. Options which were at-the-money when issued did not affect a company’s financial

statements

A semi-annual pay interest rate swap where the fixed rate is 5.00% (with semi-annual

compounding) has a remaining life of nine months. The six-month LIBOR rate

observed three months ago was 4.85% with semi-annual compounding. Today’s three

and nine month LIBOR rates are 5.3% and 5.8% (continuously compounded)

respectively. From this it can be calculated that the forward LIBOR rate for the period

between three- and nine-months is 6.14% with semi-annual compounding. If the swap

has a principal value of $15,000,000, what is the value of the swap to the party

receiving a fixed rate of interest?

A. $74,250

B. âˆ’$70,760

C. âˆ’$11,250

D. $103,790

Which of the following are cash settled

A. All futures contracts

B. All option contracts

C. Futures on commodities

D. Futures on stock indices

When an employee leaves the company which of the following is usually true?

A. All outstanding employee stock options are forfeited

B. Out-of the money employee stock options are forfeited

C. All options which have vested are forfeited

D. All options are retained

Which of the following describes the S&P/Case-Shiller index?

A. A stock market index

B. An index of interest rates on mortgages

C. An index of house prices

D. An index showing the dollar amount of mortgages granted each month

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

What is the difference between valuing an American and a European option using a

tree?

A. The value of u is higher for American options

B. The value of u is lower for American options

C. The time steps for American options are not equal

D. It is necessary to do two calculations at nodes where the option is in the money

A trader enters into a long position in one Eurodollar futures contract. How much does

the trader gain when the futures price quote increases by 6 basis points?

A. $6

B. $150

C. $60

D. $600

A binomial tree prices an American option at $3.12 and the corresponding European

option at $3.04. The Black-Scholes price of the European option is $2.98. What is the

control variate price of the American option?

A. $3.06

B. $3.18

C. $2.90

D. $3.08

When a six-month option is purchased

A. The price must be paid in full

B. Up to 25% of the option price can be borrowed using a margin account

C. Up to 50% of the option price can be borrowed using a margin account

D. Up to 75% of the option price can be borrowed using a margin account

A stock price is currently $23. A reverse (i.e short) butterfly spread is created from

options with strike prices of $20, $25, and $30. Which of the following is true?

A. The gain when the stock price is greater that $30 is less than the gain when the stock

price is less than $20

B. The gain when the stock price is greater that $30 is greater than the gain when the

stock price is less than $20

C. The gain when the stock price is greater that $30 is the same as the gain when the

stock price is less than $20

D. It is incorrect to assume that there is always a gain when the stock price is greater

than $30 or less than $20

The price of a stock on February 1 is $48. A trader sells 200 put options on the stock

with a strike price of $40 when the option price is $2. The options are exercised when

the stock price is $39. The trader’s net profit or loss is

A. Loss of $800

B. Loss of $200

C. Gain of $200

D. Loss of $900

Clearing houses are

A. Never used in futures markets and sometimes used in OTC markets

B. Used in OTC markets, but not in futures markets

C. Always used in futures markets and sometimes used in OTC markets

D. Always used in both futures markets and OTC markets

A ten year interest rate cap has quarterly resets. How many caplets does the cap consist

of?

A. 38

B. 39

C. 40

D. 41