Chapter 4

1. A company can invest funds for five years at LIBOR minus 30 basis points. The
five-year
swap rate is 3%. What fixed rate of interest can the company earn by using the
swap?
A. 2.4%
B. 2.7%
C. 3.0%
D. 3.3%
2. 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
3. Company X and Company Y have been offered the following rates
Fixed Rate Floating Rate
Company X 3.5% 3-month LIBOR plus 10bp
Company Y 4.5% 3-month LIBOR plus 30 bp
Suppose that Company X borrows fixed and company Y borrows floating. If they
enter into a
swap with each other where the apparent benefits are shared equally, what is
company X’s
effective borrowing rate?
A. 3-month LIBOR−30bp
B. 3.1%
C. 3-month LIBOR−10bp
D. 3.3%
4. Which of the following describes the five-year swap rate?
A. The fixed rate of interest which a swap market maker is prepared to pay in
exchange for
LIBOR on a 5-year swap
B. The fixed rate of interest which a swap market maker is prepared to receive in
exchange for
LIBOR on a 5-year swap
C. The average of A and B
D. The higher of A and B
5. 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
6. The reference entity in a credit default swap is
A. The buyer of protection
B. The seller of protection
C. The company or country whose default is being insured against
D. None of the above
7. Which of the following describes an interest rate swap?
A. The exchange of a fixed rate bond for a floating rate bond
B. A portfolio of forward rate agreements
C. An agreement to exchange interest at a fixed rate for interest at a floating rate
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lOMoARcPSD|32339583D. All of the above
8. Which of the following is true for an interest rate swap?
A. A swap is usually worth close to zero when it is first negotiated
B. Each forward rate agreement underlying a swap is worth close to zero when the
swap is first
entered into
C. Comparative advantage is a valid reason for entering into the swap
D. None of the above
9. Which of the following is true for the party paying fixed in a newly negotiated
interest
rate swap when the yield curve is upward sloping?
A. The early forward contracts underlying the swap have a positive value and the
later ones have
a negative value
B. The early forward contracts underlying the swap have a negative value and the
later
ones have a positive value
C. The swap is designed so that all forward rates have zero value
D. Sometimes A is true and sometimes B is true
10. A bank enters into a 3-year swap with company X where it pays LIBOR and
receives
3.00%. It enters into an offsetting swap with company Y where is receives LIBOR
and pays
2.95%. Which of the following is true:
A. If company X defaults, the swap with company Y is null and void
B. If company X defaults, the bank will be able to replace company X at no cost
C. If company X defaults, the swap with company Y continues
D. The bank’s bid-offer spread is 0.5 basis points
11. When LIBOR is used as the discount rate:
A. The value of a swap is worth zero immediately after a payment date
B. The value of a swap is worth zero immediately before a payment date
C. The value of the floating rate bond underlying a swap is worth par immediately
after a
payment date
D. The value of the floating rate bond underlying a swap is worth par immediately
before a
payment date
12. A company enters into an interest rate swap where it is paying fixed and
receiving
LIBOR. When interest rates increase, which of the following is true?
A. The value of the swap to the company increases
B. The value of the swap to the company decreases
C. The value of the swap can either increase or decrease
D. The value of the swap does not change providing the swap rate remains the
same
13. A floating for floating currency swap is equivalent to
A. Two interest rate swaps, one in each currency
B. A fixed-for-fixed currency swap and one interest rate swap
C. A fixed-for-fixed currency swap and two interest rate swaps, one in each
currency
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lOMoARcPSD|32339583D. None of the above
14. A floating-for-fixed currency swap is equivalent to
A. Two interest rate swaps, one in each currency
B. A fixed-for-fixed currency swap and one interest rate swap
C. A fixed-for-fixed currency swap and two interest rate swaps, one in each
currency
D. None of the above
15. An interest rate swap has three years of remaining life. Payments are
exchanged annually.
Interest at 3% is paid and 12-month LIBOR is received. A exchange of payments
has just taken
place. The one-year, two-year and three-year LIBOR/swap zero rates are 2%, 3%
and 4%. All
rates an annually compounded. What is the value of the swap as a percentage of
the principal
when LIBOR discounting is used.
A. 0.00
B. 2.66
C. 2.06
D. 1.06
Answer: Suppose the principal 100. The value of the floating rate bond underlying
the swap is
100. The value of the fixed rate bond is 3/1.02+3/(1.03)2+103/ (1.04)3=97.34. The
value of the
swap is therefore 100−97.34 = 2.66 or 2.66% of the principal
16. A semi-annual pay interest rate swap where the fixed rate is 5.00% (with semi-
annual
compounding) has a remaining life of nine months. The six-month LIBOR rate
observed three
months ago was 4.85% with semi-annual compounding. Today’s three and nine
month LIBOR
rates are 5.3% and 5.8% (continuously compounded) respectively. From this it can
be calculated
that the forward LIBOR rate for the period between three- and nine-months is
6.14% with semiannual compounding. If the swap has a principal value of
$15,000,000, what is the value of the
swap to the party receiving a fixed rate of interest?
A. $74,250
B. −$70,760
C. −$11,250
D. $103,790
Answer: The forward rates for the floating payment at time 9 months is 6.14%.
The swap can
be valued assuming that the fixed payments are 2.5% of principal at 3 months and
9 months
and that the floating payments are 2.425% and 3.07% of the principal at 3 months
and 9
months. The value of the swap to the party receiving fixed is therefore
1,000,000(0.025-0.02425)e-0.053×0.25+1,000,000(0.025-0.0307)e-0.058×0.75 = –
$70,760
17. 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
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lOMoARcPSD|3233958318. In a fixed-for-fixed currency swap, 3% on a US dollar
principal of $150 million is
received and 4% on a British pound principal of 100 million pounds is paid. The
current
exchange rate is 1.55 dollar per pound. Interest rates in both countries for all
maturities are
currently 5% (continuously compounded). Payments are exchanged every year.
The swap has 2.5
years left in its life. What is the value of the swap?
A. −$7.15
B. −$8.15
C. −$9.15
D. −$10.15
Answer: The value of the British pound bond underlying the swap is in millions
of pounds
4e-0.05×0.5+4e-0.05×1.5+104e-0.05×2.5 = 99.39
The value of the U.S. dollar bond is in millions of dollars
4.5e-0.05×0.5+4.5e-0.05×1.5+154.5e-0.05×2.5 = 144.91
The value of the swap is 144.91 – 99.39×1.55 = –9.15
19. Which of the following is a typical bid-offer spread on the swap rate for a plain
vanilla
interest rate swap?
A. 3 basis points
B. 8 basis points
C. 13 basis points
D. 18 basis points
20. Which of the following describes the five-year swap rate?
A. The rate on a five-year loan to a AA-rated company
B. The rate on a five-year loan to an A-rated company
C. The rate that can be earned over five years from a series of short-term loans to
AArated companies
D. The rate that can be earned over five years from a series of short-term loans to
A-rated
companies

CHAPTER 10: MECHANICS OF OPTIONS MARKETS

1. Which of the following describes a call option?
A. The right to buy an asset for a certain price
B. The obligation to buy an asset for a certain price
C. The right to sell an asset for a certain price
D. The obligation to sell an asset for a certain price
2. 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
25
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lOMoARcPSD|323395833. An investor has exchange-traded put options to sell
100 shares for $20. There is a 2 for 1
stock split. Which of the following is the position of the investor after the stock
split?
A. Put options to sell 100 shares for $20
B. Put options to sell 100 shares for $10
C. Put options to sell 200 shares for $10
D. Put options to sell 200 shares for $20
4. An investor has exchange-traded put options to sell 100 shares for $20. There is
25%
stock dividend. Which of the following is the position of the investor after the
stock dividend?
A. Put options to sell 100 shares for $20
B. Put options to sell 75 shares for $25
C. Put options to sell 125 shares for $15
D. Put options to sell 125 shares for $16
5. An investor has exchange-traded put options to sell 100 shares for $20. There is
a $1 cash
dividend. Which of the following is then the position of the investor?
A. The investor has put options to sell 100 shares for $20
B. The investor has put options to sell 100 shares for $19
C. The investor has put options to sell 105 shares for $19
D. The investor has put options to sell 105 shares for $19.05
6. Which of the following describes a short position in an option?
A. A position in an option lasting less than one month
B. A position in an option lasting less than three months
C. A position in an option lasting less than six months
D. A position where an option has been sold
7. Which of the following describes a difference between a warrant and an
exchange-traded
stock option?
A. In a warrant issue, someone has guaranteed the performance of the option seller
in the event
that the option is exercised
B. The number of warrants is fixed whereas the number of exchange-traded
options in
existence depends on trading
C. Exchange-traded stock options have a strike price
D. Warrants cannot be traded after they have been purchased
8. 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
9. Which of the following is an example of an option class?
A. All calls on a certain stock
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lOMoARcPSD|32339583B. All calls with a particular strike price on a certain
stock
C. All calls with a particular time to maturity on a certain stock
D. All calls with a particular time to maturity and strike price on a certain stock
10. Which of the following is an example of an option series?
A. All calls on a certain stock
B. All calls with a particular strike price on a certain stock
C. All calls with a particular time to maturity on a certain stock
D. All calls with a particular time to maturity and strike price on a certain stock
11. Which of the following must post margin?
A. The seller of an option
B. The buyer of an option
C. The seller and the buyer of an option
D. Neither the seller nor the buyer of an option
12. Which of the following describes a long position in an option?
A. A position where there is more than one year to maturity
B. A position where there is more than five years to maturity
C. A position where an option has been purchased
D. A position that has been held for a long time
13. Which of the following is NOT traded by the CBOE?
A. Weeklys
B. Monthlys
C. Binary options
D. DOOM options
14. When a six-month option is purchased
A. The price must be paid in full
B. Up to 25% of the option price can be borrowed using a margin account
C. Up to 50% of the option price can be borrowed using a margin account
D. Up to 75% of the option price can be borrowed using a margin account
15. Which of the following are true for CBOE stock options?
A. There are no margin requirements
B. The initial margin and maintenance margin are determined by formulas and are
equal
C. The initial margin and maintenance margin are determined by formulas and are
different
D. The maintenance margin is usually about 75% of the initial margin
16. The price of a stock is $67. A trader sells 5 put option contracts on the stock
with a strike
price of $70 when the option price is $4. The options are exercised when the stock
price is $69.
What is the trader’s net profit or loss?
A. Loss of $1,500
B. Loss of $500
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lOMoARcPSD|32339583C. Gain of $1,500
D. Loss of $1,000
Answer: Option payoff = 70 - 69 = $1
Gain = 4 - 1= $3
Options sold = 5 contracts x 100 = 500
Net gain = $3 x 500 = 1500
17. A trader buys a call and sells a put with the same strike price and maturity date.
What is
the position equivalent to?
A. A long forward
B. A short forward
C. Buying the asset
D. None of the above
18. The price of a stock is $64. A trader buys 1 put option contract on the stock
with a strike
price of $60 when the option price is $10. When does the trader make a profit?
A. When the stock price is below $60
B. When the stock price is below $64
C. When the stock price is below $54
D. When the stock price is below $50
19. Consider a put option and a call option with the same strike price and time to
maturity.
Which of the following is true?
A. It is possible for both options to be in the money
B. It is possible for both options to be out of the money
C. One of the options must be in the money
D. One of the options must be either in the money or at the money
20. 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
1. When the stock price 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
2. When the strike price increases with all else remaining the same, which of the
following
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lOMoARcPSD|32339583is 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
3. 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
4. When dividends increase 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
5. When interest rates increase 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
6. When the time to maturity increases with all else remaining the same, which of
the
following is true?
A. European options always increase in value
B. The value of European options either stays the same or increases
C. There is no effect on European option values
D. European options are liable to increase or decrease in value
7. The price of a stock, which pays no dividends, is $30 and the strike price of a
one year
European call option on the stock is $25. The risk-free rate is 4% (continuously
compounded).
Which of the following is a lower bound for the option such that there are arbitrage
opportunities
if the price is below the lower bound and no arbitrage opportunities if it is above
the lower
bound?
A. $5.00
B. $5.98
C. $4.98
D. $3.98
Answer: The lower bound in S0 − Ke-rT. In this case it is 30 – 25e-0.04×1 =
$5.98.
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lOMoARcPSD|323395838. A stock price (which pays no dividends) is $50 and the
strike price of a two year
European put option is $54. The risk-free rate is 3% (continuously compounded).
Which of the
following is a lower bound for the option such that there are arbitrage opportunities
if the price is
below the lower bound and no arbitrage opportunities if it is above the lower
bound?
A. $4.00
B. $3.86
C. $2.86
D. $0.86
Answer: The lower bound in Ke-rT −S0. In this case it is 54e−0.03×2 – 50= $0.86.
9. Which of the following is NOT true? (Present values are calculated from the end
of the
life of the option to the beginning)
A. An American put option is always worth less than the present value of the strike
price
B. A European put option is always worth less than the present value of the strike
price
C. A European call option is always worth less than the stock price
D. An American call option is always worth less than the stock price
10. Which of the following best describes the intrinsic value of an option?
A. The value it would have if the owner had to exercise it immediately or not at all
B. The Black-Scholes-Merton price of the option
C. The lower bound for the option’s price
D. The amount paid for the option
11. Which of the following describes a situation where an American put option on
a stock
becomes more likely to be exercised early?
A. Expected dividends increase
B. Interest rates decrease
C. The stock price volatility decreases
D. All of the above
12. Which of the following is true?
A. An American call option on a stock should never be exercised early
B. An American call option on a stock should never be exercised early when no
dividends
are expected
C. There is always some chance that an American call option on a stock will be
exercised early
D. There is always some chance that an American call option on a stock will be
exercised early
when no dividends are expected
13. Which of the following is the put-call parity result for a non-dividend-paying
stock?
A. The European put price plus the European call price must equal the stock price
plus the
present value of the strike price
B. The European put price plus the present value of the strike price must equal the
European call
price plus the stock price
C. The European put price plus the stock price must equal the European call price
plus the strike
price
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lOMoARcPSD|32339583D. The European put price plus the stock price must
equal the European call price plus the
present value of the strike price
14. Which of the following is true when dividends are expected?
A. Put-call parity does not hold
B. The basic put-call parity formula can be adjusted by subtracting the present
value of
expected dividends from the stock price
C. The basic put-call parity formula can be adjusted by adding the present value of
expected
dividends to the stock price
D. The basic put-call parity formula can be adjusted by subtracting the dividend
yield from the
interest rate
15. 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
Answer: Put-call parity is c+Ke-rT=p+S0. In this case K=50, S0=51, r=0.06, T=1,
and c=6. It
follows that
p=6+50e-0.06×1−51 = 2.09.
16. The price of a European call option on a 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. A dividend of $1 is expected in six months. What is the price
of a one-year
European put option on the stock with a strike price of $50?
A. $8.97
B. $6.97
C. $3.06
D. $1.12
Answer: Put-call parity is c+Ke-rT=p+S0. In this case K=50, S0=51, r=0.06, T=1,
and c=6. The
present value of the dividend is 1×e−0.06×0.5 = 0.97. It follows that
p=6+50e-0.06×1−(51-0.97) = 3.06.
17. A European call and a European put on a stock have the same strike price and
time to
maturity. At 10:00am on a certain day, the price of the call is $3 and the price of
the put is $4. At
10:01am news reaches the market that has no effect on the stock price or interest
rates, but
increases volatilities. As a result the price of the call changes to $4.50. Which of
the following is
correct?
A. The put price increases to $6.00
B. The put price decreases to $2.00
C. The put price increases to $5.50
D. It is possible that there is no effect on the put price
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lOMoARcPSD|32339583Answer: The price of the call has increased by $1.50.
From put-call parity the price of the put
must increase by the same amount. Hence the put price will become 4.00 +1.50 =
$5.50.
18. Interest rates are zero. A European call with a strike price of $50 and a maturity
of one
year is worth $6. A European put with a strike price of $50 and a maturity of one
year is worth
$7. The current stock price is $49. Which of the following is true?
A. The call price is high relative to the put price
B. The put price is high relative to the call price
C. Both the call and put must be mispriced
D. None of the above
Answer: In this case because interest rates are zero c+K=p+S0. The left side of this
equation is
50+6=56. The right side is 49+7=56. There is no mispricing.
19. Which of the following is true for American options?
A. Put-call parity provides an upper and lower bound for the difference between
call
and put prices
B. Put call parity provides an upper bound but no lower bound for the difference
between
call and put prices
C. Put call parity provides an lower bound but no upper bound for the difference
between
call and put prices
D. There are no put-call parity results
20. Which of the following can be used to create a long position in a European put
option on
a stock?
A. Buy a call option on the stock and buy the stock
B. Buy a call on the stock and short the stock
C. Sell a call option on the stock and buy the stock
D. Sell a call option on the stock and sell the stock
CHƯƠNG 12
1. 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
2. Which of the following creates a bear 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
3. Which of the following creates a bull spread?
A. Buy a low strike price put and sell a high strike price put
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lOMoARcPSD|32339583B. Buy a high strike price put and sell a low strike price
put
C. Buy a high strike price call and sell a low strike price put
D. Buy a high strike price put and sell a low strike price call
4. Which of the following creates a bear spread?
A. Buy a low strike price put and sell a high strike price put
B. Buy a high strike price put and sell a low strike price put
C. Buy a high strike price call and sell a low strike price put
D. Buy a high strike price put and sell a low strike price call
5. What is the number of different option series used in creating a butterfly spread?
A. 1
B. 2
C. 3
D. 4
6. A stock price is currently $23. A reverse (i.e short) butterfly spread is created
from options with strike prices of $20, $25, and $30. Which of the following is
true?
A. The gain when the stock price is greater than $30 is less than the gain when the
stock
price is less than $20
B. The gain when the stock price is greater than $30 is greater than the gain when
the
stock price is less than $20
C. The gain when the stock price is greater than $30 is the same as the gain when
the stock price is less than $20
D. It is incorrect to assume that there is always a gain when the stock price is
greater
than $30 or less than $20
The gain from a very high stock price or a very low stock price is the same.
Suppose calls are
used. In the case of a very low stock price none are exercised and the gain is
c1+c3−2c2 from the
option premium. In the case of a very high stock price all options are exercised.
The net payoff
is zero and the gain is the same.
7. Which of the following is correct?
A. A calendar spread can be created by buying a call and selling a put when the
strike prices are the same and the times to maturity are different
B. A calendar spread can be created by buying a put and selling a call when the
strike prices are the same and the times to maturity are different
C. A calendar spread can be created by buying a call and selling a call when the
strike prices are different and the times to maturity are different
D. A calendar spread can be created by buying a call and selling a call when the
strike prices are the same and the times to maturity are different
8. What is a description of the trading strategy where an investor sells a 3-month
call
option and buys a one-year call option, where both options have a strike price of
$100 and the
33
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lOMoARcPSD|32339583underlying stock price is $75?
A. Neutral Calendar Spread
B. Bullish Calendar Spread
C. Bearish Calendar Spread
D. None of the above
9. Which of the following is correct?
A. A diagonal spread can be created by buying a call and selling a put when the
strike
prices are the same and the times to maturity are different
B. A diagonal spread can be created by buying a put and selling a call when the
strike
prices are the same and the times to maturity are different
C. A diagonal spread can be created by buying a call and selling a call when the
strike prices are different and the times to maturity are different
D. A diagonal spread can be created by buying a call and selling a call when the
strike
prices are the same and the times to maturity are different
10. Which of the following is true of a box spread?
A. It is a package consisting of a bull spread and a bear spread
B. It involves two call options and two put options
C. It has a known value at maturity
D. All of the above
11. 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
12. How can a strip trading strategy 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
13. How can a strap trading strategy 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
14. How can a strangle trading strategy 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
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lOMoARcPSD|32339583D. Buy two calls and one put with the same strike price
and expiration date
15. Which of the following describes a protective put?
A. A long put option on a stock plus a long position in the stock
B. A long put option on a stock plus a short position in the stock
C. A short put option on a stock plus a short call option on the stock
D. A short put option on a stock plus a long position in the stock
16. Which of the following describes a covered call?
A. A long call option on a stock plus a long position in the stock
B. A long call option on a stock plus a short put option on the stock
C. A short call option on a stock plus a short position in the stock
D. A short call option on a stock plus a long position in the stock
17. When the interest rate is 5% per annum with continuous compounding, which
of
the following creates a principal protected note worth $1000?
A. A one-year zero-coupon bond plus a one-year call option worth about $59
B. A one-year zero-coupon bond plus a one-year call option worth about $49
C. A one-year zero-coupon bond plus a one-year call option worth about $39
D. A one-year zero-coupon bond plus a one-year call option worth about $29
A one-year zero-coupon bond is worth 1000e-0.05×1 or about $951. This leaves
1000−951
= $49 for buying the option.
18. 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 $18.
What is the
maximum net gain (after the cost of the options is taken into account)?
A. $100
B. $200
C. $300
D. $400
The butterfly spread involves buying 100 options with strike prices $60 and $70
and selling 200
options with strike price $65. The maximum gain is when the stock price equals
the middle strike
price, $65. The payoffs from the options are then, $500, 0, and 0, respectively. The
total payoff is
$500. The cost of setting up the butterfly spread is 11×100+18×100−14×200 =
$100. The gain is
500−100 or $400.
19. 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 $18.
What is the
maximum net loss (after the cost of the options is taken into account)?
A. $100
B. $200
C. $300
D. $400
The butterfly spread involves buying 100 options with strike prices $60 and $70
and selling 200 options
35
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lOMoARcPSD|32339583with strike price $65. The maximum loss is when the
stock price is less than $60 or greater than $70. The
total payoff is then zero. The cost of setting up the butterfly spread is
11×100+18×100−14×200 = $100.
The loss is therefore $100.
20. Six-month call options with strike prices of $35 and $40 cost $6 and $4,
respectively. What is the maximum gain when a bull spread is created by trading a
total of
200 options?
A. $100
B. $200
C. $300
D. $400
CHAPTER 1: INTRODUCTION
1. A one-year forward contract is an agreement where
A. One side has the right to buy an asset for a certain price in one year’s time.
B. One side has the obligation to buy an asset for a certain price in one year’s time.
C. One side has the obligation to buy an asset for a certain price at some time
during the next
year.
D. One side has the obligation to buy an asset for the market price in one year’s
time.
2. Which of the following is NOT true
A. When a CBOE call option on IBM is exercised, IBM issues more stock
B. An American option can be exercised at any time during its life
C. An call option will always be exercised at maturity if the underlying asset price
is greater
than the strike price
D. A put option will always be exercised at maturity if the strike price is greater
than the
underlying asset price.
3. 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 $4. Suppose that a trader
buys two call options and one put option. The breakeven stock price above which
the trader makes a profit is
A. $35
B. $40
C. $30
D. $36
4. 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 $4. 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
5. 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.
6. Which of the following best describes the term “spot price”
A. The price for immediate delivery
B. The price for delivery at a future time
C. The price of an asset that has been damaged
D. The price of renting an asset
7. Which of the following is true about a long forward contract
A. The contract becomes more valuable as the pric of the asset declines
B. The contract becomes more valuable as the price of the asset rises
C. The contract is worth zero if the price of the asset declines after the contract has
been entered
into
D. The contract is worth zero if the price of the asset rises after the contract has
been entered
into
8. An investor sells a futures contract an asset when the futures price is $1,500.
Each contract is on 100 units of the asset. The contract is closed out when the
futures price is $1,540. Which of the following is true
A. The investor has made a gain of $4,000
B. The investor has made a loss of $4,000
C. The investor has made a gain of $2,000
D. The investor has made a loss of $2,000
9. Which of the following describes European options?
A. Sold in Europe
B. Priced in Euros
C. Exercisable only at maturity
D. Calls (there are no European puts)
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
11. Which of the following is NOT true about call and put options:
A. An American option can be exercised at any time during its life
B. A European option can only be exercised only on the maturity date
C. Investors must pay an upfront price (the option premium) for an option contract
D. The price of a call option increases as the strike price increases
Giá thị trường tăng mới đúng
12. 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
13. The price of a stock on February 1 is $124. A trader sells 200 put options on
the stock with a strike price of $120 when the option price is $5. The options are
exercised when the stock price is $110. The trader’s net profit or loss is
A. Gain of $1,000
B. Loss of $2,000
C. Loss of $2,800
D. Loss of $1,000
14. The price of a stock on February 1 is $84. A trader buys 200 put options on the
stock with
a strike price of $90 when the option price is $10. The options are exercised when
the stock price
is $85. The trader’s net profit or loss is
A. Loss of $1,000
B. Loss of $2,000
C. Gain of $200
D. Gain of $1000
3
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lOMoARcPSD|32339583Long put profit=200 x [(90-85)-10] = -1000
Answer: The payoff is 90−85 or $5 per option. For 200 options the payoff is
therefore 5×200 or $1000.
However the options cost 10×200 or $2000. There is therefore a net loss of $1000.
15. The price of a stock on February 1 is $48. A trader sells 200 put options on the
stock with
a strike price of $40 when the option price is $2. The options are exercised when
the stock price
is $39. The trader’s net profit or loss is
A. Loss of $800
B. Loss of $200
C. Gain of $200
D. Loss of $900
Short put = -200 x [(40-39)-2]=200
Answer: The payoff is 40−39 or $1 per option. For 200 options the payoff is
therefore 1×200 or $200.
However the premium received by the trader is 2×200 or $400. The trader
therefore has a net gain of
$200.
16. 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
Breakeven point: Long call: 1000x[(St-45)-4]>0  St>49  Chọn D vì nó sát St
nhất
17. A company knows it will have to pay a certain amount of a foreign currency to
one of its
suppliers in the future. Which of the following is true
A. A forward contract can be used to lock in the exchange rate
B. A forward contract will always give a better outcome than an option
C. An option will always give a better outcome than a forward contract
D. An option can be used to lock in the exchange rate
18. A short forward contract on an asset plus a long position in a European call
option on the
asset with a strike price equal to the forward price is equivalent to
A. A short position in a call option
B. A short position in a put option
C. A long position in a put option
D. None of the above
short: K-St
4
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lOMoARcPSD|32339583long call=St-K khi St>K và = 0 khi St<=K
Short + long call = 0 khi St>K và K-ST khi ST<= K

Long put
19. 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
Cái này chương 3 mà sao có bên chương 1?
Giảm rủi ro  nên short 5tr/250x1250=16
Answer: One futures contract protects a portfolio worth 1250×250. The number of
contract
required is therefore 5,000,000/(1250×250)=16. To remove market risk we need to
gain on the
contracts when the market declines. A short futures position is therefore required.
20. Which of the following best describes a central clearing party
A. It is a trader that works for an exchange
B. It stands between two parties in the over-the-counter market
C. It is a trader that works for a bank
D. It helps facilitate futures trades
CHAPTER 2: MECHANICS OF FUTURES MARKETS
1. Which of the following is true?
A. Both forward and futures contracts are traded on exchanges.
B. Forward contracts are traded on exchanges, but futures contracts are not.
C. Futures contracts are traded on exchanges, but forward contracts are not.
D. Neither futures contracts nor forward contracts are traded on exchanges.
2. Which of the following is NOT true
A. Futures contracts nearly always last longer than forward contracts
B. Futures contracts are standardized; forward contracts are not.
C. Delivery or final cash settlement usually takes place with forward contracts; the
same is
not true of futures contracts.
D. Forward contracts usually have one specified delivery date; futures contracts
often have a
range of delivery dates.
3. In the corn futures contract a number of different types of corn can be delivered
(with
price adjustments specified by the exchange) and there are a number of different
delivery
locations. Which of the following is true
A. This flexibility tends to increase the futures price.
B. This flexibility tends to decrease the futures price.
C. This flexibility may increase and may decrease the futures price.
D. This flexibility has no effect on the futures price
5
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lOMoARcPSD|323395834. A company enters into a short futures contract to sell
50,000 units of a commodity for 70
cents per unit. The initial margin is $4,000 and the maintenance margin is $3,000.
What is the
futures price per unit above which there will be a margin call?
A. 78 cents
B. 76 cents
C. 74 cents
D. 72 cents
Margin balance= 4000 + 50000 x (0.7-x) < 3000 => x=72 cents
5. A company enters into a long futures contract to buy 1,000 units of a commodity
for $60
per unit. The initial margin is $6,000 and the maintenance margin is $4,000. What
futures price
will allow $2,000 to be withdrawn from the margin account?
A. $58
B. $62
C. $64
D. $66
Daily gain = 2000 = 1000 x (x-60) => x = 62
6. One futures contract is traded where both the long and short parties are closing
out
existing positions. What is the resultant change in the open interest?
A. No change
B. Decrease by one
C. Decrease by two
D. Increase by one
7. Who initiates delivery in a corn futures contract
A. The party with the long position
B. The party with the short position  Người bán
C. Either party
D. The exchange
8. You sell one December futures contracts when the futures price is $1,010 per
unit. Each
contract is on 100 units and the initial margin per contract that you provide is
$2,000. The
maintenance margin per contract is $1,500. During the next day the futures price
rises to $1,012
per unit. What is the balance of your margin account at the end of the day?
A. $1,800
B. $3,300
C. $2,200
D. $3,700
Câu này đáp án đúng là A. Margin balance = 2000 + 100 x (1010-1012) = 1800
Answer: The price has increased by $2. Because you have a short position you lose
2×100 or
$200. The balance in the margin account therefore goes down from $3,500 to
$3,300.
9. A hedger takes a long position in a futures contract on a commodity on
November 1,
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lOMoARcPSD|323395832012 to hedge an exposure on March 1, 2013. The initial
futures price is $60. On December 31,
2012 the futures price is $61. On March 1, 2013 it is $64. The contract is closed
out on March 1,
2013. What gain is recognized in the accounting year January 1 to December 31,
2013? Each
contract is on 1000 units of the commodity.
A. $0
B. $1,000
C. $3,000
D. $4,000
1/11/2012  60
31/12/2012  61
1/3/2013  64

lời (64-60) x 1000 = 4000 (Hedger thì lấy giá initial trừ vì hedger mua HĐTL dùng
để bảo vệ rủi ro giá tài sản)
10. A speculator takes a long position in a futures contract on a commodity on
November 1,
2012 to hedge an exposure on March 1, 2013. The initial futures price is $60. On
December 31,
2012 the futures price is $61. On March 1, 2013 it is $64. The contract is closed
out on March 1,
2013. What gain is recognized in the accounting year January 1 to December 31,
2013? Each
contract is on 1000 units of the commodity.
A. $0
B. $1,000
B. $3,000
C. $4,000
Lời (64-61) x 1000 = 3000 (Spectaculor không áp dụng kế toán bảo hiểm nên lời/lỗ
tích lũy như
bình thường)
11. The frequency with which futures margin accounts are adjusted for gains and
losses is
A. Daily
B. Weekly
C. Monthly
D. Quarterly
Forward thì at the end of contract
12. Margin accounts have the effect of
A. Reducing the risk of one party regretting the deal and backing out
B. Ensuring funds are available to pay traders when they make a profit
C. Reducing systemic risk due to collapse of futures markets
D. All of the above
13. 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
14. For a futures contract trading in April 2012, the open interest for a June 2012
contract, when compared to the open interest for Sept 2012 contracts, is usually
A. Higher
B. Lower
C. The same
D. Equally likely to be higher or lower
15. Clearing houses (Nhà thanh toán bù trừ) are
A. Never used in futures markets and sometimes used in OTC markets
B. Used in OTC markets, but not in futures markets
C. Always used in futures markets and sometimes used in OTC markets
D. Always used in both futures markets and OTC markets
16. A haircut of 20% means that
A. A bond with a market value of $100 is considered to be worth $80 when used to
satisfy a
collateral request
B. A bond with a face value of $100 is considered to be worth $80 when used to
satisfy a
collateral request
C. A bond with a market value of $100 is considered to be worth $83.3 when used
to satisfy a
collateral request
D. A bond with a face value of $100 is considered to be worth $83.3 when used to
satisfy a
collateral request
17. With bilateral clearing (thanh toán bù trừ song phương), the number of
agreements
between four dealers, who trade with each other, is
A. 12
B. 1
C. 6
D. 2
4 dealers A, B, C, D  6 cặp
18. Which of the following best describes central clearing parties
A. Help market participants to value derivative transactions
B. Must be used for all OTC derivative transactions
C. Are used for futures transactions
D. Perform a similar function to exchange clearing houses
19. Which of the following are cash settled
A. All futures contracts
B. All option contracts
C. Futures on commodities
D. Futures on stock indices
20. A limit order
A. Is an order to trade up to a certain number of futures contracts at a certain price
B. Is an order that can be executed at a specified price or one more favorable to the
investor
C. Is an order that must be executed within a specified period of time
D. None of the above