Which of the following is true?
A. The optimal hedge ratio is the slope of the best fit line when the spot price (on the
y-axis) is regressed against the futures price (on the x-axis).
B. The optimal hedge ratio is the slope of the best fit line when the futures price (on the
y-axis) is regressed against the spot price (on the x-axis).
C. The optimal hedge ratio is the slope of the best fit line when the change in the spot
price (on the y-axis) is regressed against the change in the futures price (on the x-axis).
D. The optimal hedge ratio is the slope of the best fit line when the change in the
futures price (on the y-axis) is regressed against the change in the spot price (on the
x-axis).
Which of the following is true for European call and put options?
A. If they have the same strike price, they have the same implied volatility
B. If they have the same time to maturity, they have the same implied volatility
C. If they have the same strike price and time to maturity, they have the same implied
volatility
D. None of the above
On March 1 the price of a commodity is $1,000 and the December futures price is
$1,015. On November 1 the price is $980 and the December futures price is $981. A
producer of the commodity entered into a December futures contracts on March 1 to
hedge the sale of the commodity on November 1. It closed out its position on
November 1. What is the effective price (after taking account of hedging) received by
the company for the commodity?
A. $1,016
B. $1,001
C. $981
D. $1,014
The price of a European call option on a non-dividend-paying stock with a strike price
of $50 is $6. The stock price is $51, the continuously compounded risk-free rate (all
maturities) is 6% and the time to maturity is one year. What is the price of a one-year
European put option on the stock with a strike price of $50?
A. $9.91
B. $7.00
C. $6.00
D. $2.09
A trader has a portfolio worth $5 million that mirrors the performance of a stock index.
The stock index is currently 1,250. Futures contracts trade on the index with one
contract being on 250 times the index. To remove market risk from the portfolio the
trader should
A. Buy 16 contracts
B. Sell 16 contracts
C. Buy 20 contracts
D. Sell 20 contracts
Which of the following is the average of CDD and HDD for a day?
A. The highest temperature during the day
B. The lowest temperature during the day
C. The average temperature during the day
D. None of the above
The conversion factor for a bond is approximately
A. The price it would have if all cash flows were discounted at 6% per annum
B. The price it would have if it paid coupons at 6% per annum
C. The price it would have if all cash flows were discounted at 8% per annum
D. The price it would have if it paid coupons at 8% per annum
Which of the following is true for a one-year call option on a stock that pays dividends
every three months?
A. It is never optimal to exercise the option early
B. It can be optimal to exercise the option at any time
C. It is only ever optimal to exercise the option immediately after an ex-dividend date
D. None of the above
Which of the following describes the way a LIBOR-in-arrears swap differs from a plain
vanilla interest rate swap?
A. Interest is paid at the beginning of the accrual period in a LIBOR-in-arrears swap
B. Interest is paid at the end of the accrual period in a LIBOR-in-arrears swap
C. No floating interest is paid until the end of the life of the swap in a LIBOR-in-arrears
swap, but fixed payments are made throughout the life of the swap
D. Neither floating nor fixed payments are made until the end of the life of the swap
Which of the following is true?
A. A long call is the same as a short put
B. A short call is the same as a long put
C. A call on a stock plus a stock the same as a put
D. None of the above
The most recent settlement bond futures price is 103.5. Which of the following four
bonds is cheapest to deliver?
A. Quoted bond price = 110; conversion factor = 1.0400.
B. Quoted bond price = 160; conversion factor = 1.5200.
C. Quoted bond price = 131; conversion factor = 1.2500.
D. Quoted bond price = 143; conversion factor = 1.3500.
Which of the following does NOT describe beta?
A. A measure of the sensitivity of the return on an asset to the return on an index
B. The slope of the best fit line when the return on an asset is regressed against the
return on the market
C. The hedge ratio necessary to remove market risk from a portfolio
D. Measures correlation between futures prices and spot prices for a commodity
Which of the following best describes the capital asset pricing model?
A. Determines the amount of capital that is needed in particular situations
B. Is used to determine the price of futures contracts
C. Relates the return on an asset to the return on a stock index
D. Is used to determine the volatility of a stock index
If the CDS spread for a regular 5-year CDS is 120 basis points, what is the CDS spread
for a 5-year binary CDS on the same underlying reference entity? Assume a recovery
rate of 40%.
A. 48 basis points
B. 72 basis points
C. 200 basis points
D. 300 basis points
The current price of a non-dividend-paying stock is $30. Over the next six months it is
expected to rise to $36 or fall to $26. Assume the risk-free rate is zero. What is the
risk-neutral probability of that the stock price will be $36?
A. 0.6
B. 0.5
C. 0.4
D. 0.3
