Which of the following is true as time to maturity increases?
A. The volatility smile for currency options tends to become more pronounced
B. The volatility smile for currency options tends to become less pronounced
C. The volatility smile for currency options first becomes less pronounced and then
becomes more pronounced
D. The volatility smile for currency options remains approximately the same
Which of the following is NOT a theory of the term structure
A. Expectations theory
B. Market segmentation theory
C. Liquidity preference theory
D. Maturity preference theory
What is the expected growth rate of an index futures price in the risk-neutral world?
A. The excess of the risk-free rate over the dividend yield
B. The risk-free rate
C. The dividend yield on the index
D. Zero
How can a straddle 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
Which of the following is usually used to define the recovery rate of a bond?
A. The value of the bond immediately after default as a percent of its face value
B. The value of the bond immediately after default as a percent of the sum of the bond’s
face value and accrued interest
C. The amount finally realized by a bondholder as a percent of face value
D. The amount finally realized by a bondholder as a percent of the sum of the bond’s
face value and accrued interest
What does EWMA stand for?
A. Equally weighted moving average
B. Equally weighted median approximation
C. Exponentially weighted moving average
D. Exponentially weighted median average
The price of a December put futures option is quoted as 5-52. Each Treasury bond
futures contract is for delivery of $100,000 in Treasury bonds. What is the cost of one
contract?
A. $5,520.00
B. $5,812.50
C. $6,625.00
D. $8,250.00
Which entity in the United States takes primary responsibility for regulating futures
market?
A. Federal Reserve Board
B. Commodities Futures Trading Commission (CFTC)
C. Security and Exchange Commission (SEC)
D. US Treasury
Which of the following was true about employee stock options prior to 1995?
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
Which of the following describes a known dividend yield on a stock?
A. The size of the dividend payments each year is known
B. Dividends per year as a percentage of today’s stock price are known
C. Dividends per year as a percentage of the stock price at the time when dividends are
paid are known
D. Dividends will yield a certain return to a person buying the stock today
An investor shorts 100 shares when the share price is $50 and closes out the position six
months later when the share price is $43. The shares pay a dividend of $3 per share
during the six months. How much does the investor gain?
A. $1,000
B. $400
C. $700
D. $300
What does the shape of the volatility smile reveal about put options on equity?
A. Options close-to-the-money have the lowest implied volatility
B. Options deep-in-the-money have a relatively high implied volatility
C. Options deep-out-of-the-money have a relatively high implied volatility
D. All of the above
A one-year call option on a stock with a strike price of $30 costs $3; a one-year put
option on the stock with a strike price of $30 costs $ Suppose that a trader buys two call
options and one put option. The breakeven stock price below which the trader makes a
profit is
A. $25
B. $28
C. $26
D. $20
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
When the non-dividend paying stock price is $20, the strike price is $20, the risk-free
rate is 6%, the volatility is 20% and the time to maturity is 3 months which of the
following is the price of a European call option on the stock
A. 20N(0.1)-19.7N(0.2)
B. 20N(0.2)-19.7N(0.1)
C. 19.7N(0.2)-20N(0.1)
D. 19.7N(0.1)-20N(0.2)
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
A portfolio manager in charge of a portfolio worth $10 million is concerned that stock
prices might decline rapidly during the next six months and would like to use put
options on an index to provide protection against the portfolio falling below $9.5
million. The index is currently standing at 500 and each contract is on 100 times the
index. What position is required if the portfolio has a beta of 1?
A. Short 200 contracts
B. Long 200 contracts
C. Short 100 contracts
D. Long 100 contracts
The six month and one-year rates are 3% and 4% per annum with semiannual
compounding. Which of the following is closest to the one-year par yield expressed
with semiannual compounding?
A. 3.99%
B. 3.98%
C. 3.97%
D. 3.96%
A Eurodollar futures option contract has a strike price of 97 and the Eurodollar interest
rate is 2.50%. What is the intrinsic value of the contract if the option is a call?
A. $0
B. $1,250
C. $1,750
D. $2,500