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
The gain from a project is equally likely to have any value between -$0.15 million and
+$0.85 million. What is the 99% value at risk?
A. $0.145 million
B. $0.14 million
C. $0.13 million
D. $0.10 million
In which of the following cases is an asset NOT considered constructively sold?
A. The owner shorts the asset
B. The owner buys an in-the-money put option on the asset
C. The owner shorts a forward contract on the asset
D. The owner shorts a futures contract on the stock
Which of the following was true about employee stock options between 1996 and
2004?
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 European at-the-money put option on a currency has four years until maturity. The
exchange rate volatility is 10%, the domestic risk-free rate is 2% and the foreign
risk-free rate is 5%. The current exchange rate is 1.2000. What is the value of the
option?
A. 1.11N(0.7)-0.98N(0.5)
B. 1.11N(-0.7)-0.98N(-0.5)
C. 1.11N(0.7)-0.98N(0.4)
D. 1.11N(-0.06)-0.98N(-0.10)
Which of the following is NOT true
A. A call option gives the holder the right to buy an asset by a certain date for a certain
price
B. A put option gives the holder the right to sell an asset by a certain date for a certain
price
C. The holder of a call or put option must exercise the right to sell or buy an asset
D. The holder of a forward contract is obligated to buy or sell an asset
Which of the following typically has the lowest volatility?
A. Crude oil
B. Natural gas
C. Electricity in the winter
D. Electricity in the summer
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 as the correlation between mortgage defaults increases?
A. Equity tranches are almost certain to incur losses
B. Senior tranches become more likely to incur losses
C. The expected number of defaults increases
D. Equity tranches are unaffected
Which of the following is NOT seasonal?
A. Spot electricity prices
B. Spot natural gas prices
C. Electricity futures prices for the December contract
D. Spot price of corn
One-year European call and put options on an asset are worth $3 and $4 respectively
when the strike price is $20 and the one-year risk-free rate is 5%. What is the one-year
futures price of the asset if there are no arbitrage opportunities? (Use put-call parity.)
A. $19.55
B. $18.95
C. $20.95
D. $20.45
Which of the following tends to lead to an increase in house prices?
A. An increase in interest rates
B. Regulators specifying a maximum level for the loan-to-value ratio on mortgages
C. Banks reducing the minimum FICO score that borrowers are required to have
D. An increase in foreclosures
Which of the following describes delta?
A. The ratio of the option price to the stock price
B. The ratio of the stock price to the option price
C. The ratio of a change in the option price to the corresponding change in the stock
price
D. The ratio of a change in the stock price to the corresponding change in the option
price
Since the credit crisis that started in 2007 which of the following have derivatives
traders started to use as the risk-free rate for some transactions
A. The Treasury rate
B. The LIBOR rate
C. The repo rate
D. The overnight indexed swap rate
Which of the following describes LEAPS?
A. Options which are partly American and partly European
B. Options where the strike price changes through time
C. Exchange-traded stock options with longer lives than regular exchange-traded stock
options
D. Options on the average stock price during a period of time