Which of the following is a use of a currency swap?
A. To exchange an investment in one currency for an investment in another currency
B. To exchange borrowing in one currency for borrowings in another currency
C. To take advantage situations where the tax rates in two countries are different
D. All of the above
Which of the following is true for a call option on a stock worth $50
A. As a stock’s expected return increases the price of the option increases
B. As a stock’s expected return increases the price of the option decreases
C. As a stock’s expected return increases the price of the option might increase or
decrease
D. As a stock’s expected return increases the price of the option on the stock stays the
same
The price of a stock on July 1 is $57. A trader buys 100 call options on the stock with a
strike price of $60 when the option price is $2. The options are exercised when the
stock price is $65. The trader’s net profit is
A. $700
B. $500
C. $300
D. $600
An Asian option is a term used to describe which of the following
A. An option where the payoff depends on whether a barrier is hit
B. An option where the payoff depends on the average value of a variable over a period
of time
C. An option that trades on an exchange in the Far East
D. Any option with a nonstandard payoff
The current price of a non-dividend paying stock is $50. Use a two-step tree to value an
American put option on the stock with a strike price of $48 that expires in 12 months.
Each step is 6 months, the risk free rate is 5% per annum, and the volatility is 20%.
Which of the following is the option price?
A. $1.95
B. $2.00
C. $2.05
D. $2.10
What does rho measure?
A. The rate of change of delta with the asset price
B. The rate of change of the portfolio value with the passage of time
C. The sensitivity of a portfolio value to interest rate changes
D. None of the above
A floating lookback call option pays off which of the following
A. The amount by which the final stock price exceeds the minimum stock price
B. The amount by which the maximum stock price exceeds the final stock price
C. The amount by which the strike price exceeds the minimum stock price
D. The amount by which the maximum stock price exceeds the strike price
What is the cash component of the payoff if a call futures option on 50 units of the
underlying asset is exercised?
A. (Current Futures Price – Strike Price) times 50
B. (Strike Price – Current Futures Price) times 50
C. (Most Recent Futures Settlement Price – Strike Price) times 50
D. (Strike Price – Most Recent Futures Settlement Price) times 50
In a binomial tree created to value an option on a stock, what is the expected return on
the option?
A. Zero
B. The return required by the market
C. The risk-free rate
D. It is impossible to know without more information
In put-call parity for caps and floors, which of the following is true?
A. Long cap plus long floor equals swap
B. Long cap plus swap equals short floor
C. Long cap equals long floor plus swap
D. Long cap minus long floor equals swaption
How much is a basis point?
A. 1.0%
B. 0.1%
C. 0.01%
D. 0.001%
Which of the following is NOT true in a risk-neutral world?
A. The expected return on a call option is independent of its strike price
B. Investors expect higher returns to compensate for higher risk
C. The expected return on a stock is the risk-free rate
D. The discount rate used for the expected payoff on an option is the risk-free rate
A portfolio manager in charge of a portfolio worth $10 million is concerned that the
market 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 0.5?
A. Short 200 contracts
B. Long 200 contracts
C. Short 100 contracts
D. Long 100 contracts
A trader creates a long butterfly spread from options with strike prices $60, $65, and
$70 by trading a total of 400 options. The options are worth $11, $14, and $ What is the
maximum net gain (after the cost of the options is taken into account)?
A. $100
B. $200
C. $300
D. $400
Which of the following is true of a synthetic CDO?
A. It is created from portfolios of bonds
B. It is created from portfolios of CDSs
C. It references a standard portfolio of bonds
D. None of the above
For a European call option on a currency, the exchange rate is 1.0000, the strike price is
0.9100, the time to maturity is one year, the domestic risk-free rate is 5% per annum,
and the foreign risk-free rate is 3% per annum. How low can the option price be without
there being an arbitrage opportunity?
A. 0.1048
B. 0.0900
C. 0.1344
D. 0.1211
Which of the following is approximately true when size is measured in terms of the
underlying principal amounts or value of the underlying assets
A. The exchange-traded market is twice as big as the over-the-counter market.
B. The over-the-counter market is twice as big as the exchange-traded market.
C. The exchange-traded market is ten times as big as the over-the-counter market.
D. The over-the-counter market is ten times as big as the exchange-traded market.
Which of the following is the payoff from an average strike call option?
A. The excess of the strike price over the average stock price, if positive
B. The excess of the final stock price over the average stock price, if positive
C. The excess of the average stock price over the strike price, if positive
D. The excess of the average stock price over the final stock price, if positive