What is the number of companies underlying the iTraxx index?
A. 50
B. 75
C. 100
D. 125
A speculator can choose between buying 100 shares of a stock for $40 per share and
buying 1000 European call options on the stock with a strike price of $45 for $4 per
option. For second alternative to give a better outcome at the option maturity, the stock
price must be above
A. $45
B. $46
C. $55
D. $50
When an employee stock option is exercised, which of the following is usually true?
A. The employee pays the market price for the shares and the company refunds the
difference between the market price and the strike price
B. The company or the company’s agent buys stock in the market for the employee
C. The company issues more shares and sells them to the employee for the strike price
D. The employee cannot immediately sell the shares
Which of the following creates a bull spread?
A. Buy a low strike price call and sell a high strike price call
B. Buy a high strike price call and sell a low strike price call
C. Buy a low strike price call and sell a high strike price put
D. Buy a low strike price put and sell a high strike price call
How many different paths are there through a Cox-Ross-Rubinstein tree with
four-steps?
A. 5
B. 9
C. 12
D. 16
Which of the following is true of a covariance matrix?
A. The numbers on the diagonal are variances
B. The numbers on the diagonal are standard deviations
C. The numbers on the diagonal are all one
D. The numbers on the diagonal are all zero
Which of following describes forward rates?
A. Interest rates implied by current zero rates for future periods of time
B. Interest rate earned on an investment that starts today and last for n-years in the
future without coupons
C. The coupon rate that causes a bond price to equal its par (or principal) value
D. A single discount rate that gives the value of a bond equal to its market price when
applied to all cash flows
Which of the following is NOT true about a range forward contract?
A. It ensures that the exchange rate for a future transaction will lie between two values
B. It can be structured so that it costs nothing to set up
C. It requires a forward contract as well as two options
D. It can be used to hedge either a future inflow or a future outflow of a foreign
currency
When volatility increases with all else remaining the same, which of the following is
true?
A. Both calls and puts increase in value
B. Both calls and puts decrease in value
C. Calls increase in value while puts decrease in value
D. Puts increase in value while calls decrease in value
Which of the following is true when the futures price exceeds the spot price?
A. Calls on futures should never be exercised early
B. Put on futures should never be exercised early
C. A call on futures is always worth at least as much as the corresponding call on spot
D. A call on spot is always worth at least as much as the corresponding call on futures
Which of the following is NOT true about duration?
A. It equals the years-to-maturity for a zero coupon bond
B. It equals the weighted average of payment times for a bond, where weights are
proportional to the present value of payments
C. Equals the weighted average of individual bond durations for a portfolio, where
weights are proportional to the present value of bond prices
D. The prices of two bonds with the same duration change by the same percentage
amount when interest rate moves up by 100 basis points
The daily percentage change in an exchange rate is compared to a normal distribution
with the same mean and standard deviation. Which of the following is true
A. Both small and large exchange rate moves are more likely than with the normal
distribution
B. Small exchange rate moves are less likely and large exchange rate moves are more
likely than with the normal distribution
C. Large exchange rate moves are less likely and small exchange rate moves are more
likely than with the normal distribution
D. Both small and large exchange rate moves are less likely than with the normal
distribution
The risk-free rate is 5% and the dividend yield on the S&P 500 index is 2%. Which of
the following is correct when a futures option on the index is being valued?
A. The futures price of the S&P 500 is treated like a stock paying a dividend yield of
5%.
B. The futures price of the S&P 500 is treated like a stock paying a dividend yield of
2%.
C. The futures price of the S&P 500 is treated like a stock paying a dividend yield of
3%.
D. The futures price of the S&P 500 is treated like a non-dividend-paying stock.
What does gamma 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
Which of the following could be a result of ‘crashophobia’?
A. High volatilities for in-the-money calls
B. High volatilities for in-the-money puts
C. High volatilities for at-the-money calls
D. Low volatilities for at-the-money puts
Which of the following typically has the highest volatility?
A. Crude oil
B. Natural gas
C. Electricity
D. Sometimes crude oil and sometimes natural gas
A fixed lookback put 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
A futures price is currently 40 cents. It is expected to move up to 44 cents or down to 34
cents in the next six months. The risk-free interest rate is 6%. What is the probability of
an up movement in a risk-neutral world?
A. 0.4
B. 0.5
C. 0.72
D. 0.6
A company has a $36 million portfolio with a beta of 1.2. The futures price for a
contract on an index is 900. Futures contracts on $250 times the index can be traded.
What trade is necessary to reduce beta to 0.9?
A. Long 192 contracts
B. Short 192 contracts
C. Long 48 contracts
D. Short 48 contracts