Question 1

If the price of an underlying asset has a standard deviation of zero:

Accepted Answer

A) options for this asset would likely not exist. 
B) option for this asset would be highly valued. 
C) the intrinsic value of options for this asset would equal the asset's price. 
D) options for this asset would have a time value of the option equal to the price of the asset. 
A) options for this asset would likely not exist. 
B) option for this asset would be highly valued. 
C) the intrinsic value of options for this asset would equal the asset's price. 
D) options for this asset would have a time value of the option equal to the price of the asset.

Question 2

Identify four factors that will cause the value of put options to decrease.

Accepted Answer

Put options will decrease in value if th

Question 3

There's a call option written for 100 shares of GM stock for $85.00 a share, prior to the third Friday of October 2017: The option writer:

Accepted Answer

A) has the option but not the requirement of selling 100 shares of GM for $85.00. 
B) will sell 100 shares of GM for $85.00 on the third Friday of October 2017. 
C) has the option to back out of this contract prior to the third Friday of October 2017. 
D) is required to post margin. 
A) has the option but not the requirement of selling 100 shares of GM for $85.00. 
B) will sell 100 shares of GM for $85.00 on the third Friday of October 2017. 
C) has the option to back out of this contract prior to the third Friday of October 2017. 
D) is required to post margin.

Question 4

Assume we have a stock currently worth $100.We also assume the interest rate is zero, and we can buy options for this stock with a strike price of $100.If the stock can rise or fall by $20 with equal probability over the option period, and the option cannot be exercised until the expiration date, what is the time value of the option?

Accepted Answer

A) $20 
B) $0 
C) $10 
D) $100 
A) $20 
B) $0 
C) $10 
D) $100

Question 5

Assume we have a stock currently worth $100.We also assume the interest rate is zero, and we can buy options for this stock with a strike price of $100.If the stock can rise or fall by $5 with equal probability over the option period, and the option cannot be exercised until the expiration date, what is the time value of the option?

Accepted Answer

A) $10 
B) $5 
C) $0 
D) None of the answers is correct. 
A) $10 
B) $5 
C) $0 
D) None of the answers is correct.

Question 6

The time value of the option can best be defined as (excluding its intrinsic value):

Accepted Answer

A) the commission earned by a broker. 
B) the fee earned for the potential benefits from buying the option. 
C) the service fee charged by the SEC for regulating the option market. 
D) the fee paid for the potential benefits from buying an option. 
A) the commission earned by a broker. 
B) the fee earned for the potential benefits from buying the option. 
C) the service fee charged by the SEC for regulating the option market. 
D) the fee paid for the potential benefits from buying an option.

Question 7

Explain the concept of notional principal used in swaps.

Accepted Answer

The idea of notional principal

Question 8

Considering a call option, if the price of the underlying asset decreases:

Accepted Answer

A) the intrinsic value of the option decreases if it is above zero. 
B) the intrinsic value of the option increases if it is above zero. 
C) the strike price decreases. 
D) the value of the option increases. 
A) the intrinsic value of the option decreases if it is above zero. 
B) the intrinsic value of the option increases if it is above zero. 
C) the strike price decreases. 
D) the value of the option increases.

Question 9

The long position in a futures contract is the party that will:

Accepted Answer

A) benefit from decreases in the price of the underlying asset. 
B) agree to make delivery of a commodity or financial instrument at a future date. 
C) benefit from increases in the price of the underlying asset. 
D) accept the greater share of the risk. 
A) benefit from decreases in the price of the underlying asset. 
B) agree to make delivery of a commodity or financial instrument at a future date. 
C) benefit from increases in the price of the underlying asset. 
D) accept the greater share of the risk.

Question 10

Assume we have a stock currently worth $50.We also assume the interest rate is zero, and we can buy options for this stock with a strike price of $50.If the stock can rise or fall by $10 with equal probability over the option period, and the option cannot be exercised until the expiration date, what is the time value of the option?

Accepted Answer

A) $5 
B) $10 
C) $50 
D) $40 
A) $5 
B) $10 
C) $50 
D) $40

Question 11

Explain the difference between American and European options.

Accepted Answer

American options can be exercised on any

Question 12

One key difference between options contracts and futures contracts is:

Accepted Answer

A) in a futures contract, one part has more rights than the other. 
B) with an options contract both parties have equal rights. 
C) in an options contract, the rights belong to one party. 
D) in a futures contract all rights are held by just one party. 
A) in a futures contract, one part has more rights than the other. 
B) with an options contract both parties have equal rights. 
C) in an options contract, the rights belong to one party. 
D) in a futures contract all rights are held by just one party.

Question 13

The principal in an interest rate swap is:

Accepted Answer

A) always transferred from the originator to the counterparty of the swap. 
B) is usually held by a clearinghouse to guarantee payment. 
C) usually borrowed from a third party. 
D) is not borrowed, lent, or exchanged.It just serves as the basis for the calculation of cash flows. 
A) always transferred from the originator to the counterparty of the swap. 
B) is usually held by a clearinghouse to guarantee payment. 
C) usually borrowed from a third party. 
D) is not borrowed, lent, or exchanged.It just serves as the basis for the calculation of cash flows.

Question 14

Explain the popularity of options in the sense of the potential gains and losses they offer.

Accepted Answer

Option contracts are popular because for

Question 15

If the current closing price in the stock of XYZ Inc., is $87.50 and the July expiration put options with a strike price of $80 are selling for $1.05, what is the intrinsic value of the option? What is the option premium?

Accepted Answer

The intrinsic value of a put option is t

Question 16

Sue buys a futures contract for U.S.Treasury bonds and on the settlement date the interest rate on U.S.Treasury bonds is higher than Sue expected.Sue will have:

Accepted Answer

A) gained money on her short position. 
B) gained money on her long position. 
C) lost money on her long position. 
D) lost money on her short position. 
A) gained money on her short position. 
B) gained money on her long position. 
C) lost money on her long position. 
D) lost money on her short position.

Question 17

Suppose you purchase a put option to sell General Motors common stock at $80 per share in March.The current price of GM stock is $83 and the time value of the option is $1.What is the intrinsic value of the option?

Accepted Answer

In this case the intrinsic value of the

Question 18

The seller of a put option is transferring the risk:

Accepted Answer

A) of a price decrease of the stock to the buyer of the option. 
B) of a price increase of the stock to the buyer of the option. 
C) this statement is incorrect since options do not transfer risk. 
D) this statement is incorrect since only sellers of call options are transferring risk. 
A) of a price decrease of the stock to the buyer of the option. 
B) of a price increase of the stock to the buyer of the option. 
C) this statement is incorrect since options do not transfer risk. 
D) this statement is incorrect since only sellers of call options are transferring risk.

Question 19

What are the three main ways to categorize derivatives?

Accepted Answer

Derivatives can be c

Question 20

Explain why for speculation, the purchase of an option may be more attractive than a futures contract or the outright purchase of the underlying asset.

Accepted Answer

Let's say an investor believes that inte

If the price of an underlying asset has a standard deviation of zero:

Identify four factors that will cause the value of put options to decrease.

There's a call option written for 100 shares of GM stock for $85.00 a share, prior to the third Friday of October 2017: The option writer:

The time value of the option can best be defined as (excluding its intrinsic value):

Explain the concept of notional principal used in swaps.

Considering a call option, if the price of the underlying asset decreases:

The long position in a futures contract is the party that will:

Explain the difference between American and European options.

One key difference between options contracts and futures contracts is:

The principal in an interest rate swap is:

Explain the popularity of options in the sense of the potential gains and losses they offer.

If the current closing price in the stock of XYZ Inc., is $87.50 and the July expiration put options with a strike price of $80 are selling for $1.05, what is the intrinsic value of the option? What is the option premium?

Sue buys a futures contract for U.S.Treasury bonds and on the settlement date the interest rate on U.S.Treasury bonds is higher than Sue expected.Sue will have:

Suppose you purchase a put option to sell General Motors common stock at $80 per share in March.The current price of GM stock is $83 and the time value of the option is $1.What is the intrinsic value of the option?

The seller of a put option is transferring the risk:

What are the three main ways to categorize derivatives?

Explain why for speculation, the purchase of an option may be more attractive than a futures contract or the outright purchase of the underlying asset.

An Introduction to Money and the Financial System

Money and the Payments System

Financial Instruments, Financial Markets, and Financial Institutions

Future Value, Present Value, and Interest Rates

Understanding Risk

Bonds, Bond Prices, and the Determination of Interest Rates

The Risk and Term Structure of Interest Rates

Stocks, Stock Markets, and Market Efficiency

Foreign Exchange

The Economics of Financial Intermediation

Depository Institutions: Banks and Bank Management

Financial Industry Structure

Regulating the Financial System

Central Banks in the World Today

The Structure of Central Banks: The Federal Reserve and the European Central Bank

The Central Bank Balance Sheet and the Money Supply Process

Monetary Policy: Stabilizing the Domestic Economy

Exchange-Rate Policy and the Central Bank

Money Growth, Money Demand, and Modern Monetary Policy

Output, Inflation, and Monetary Policy

Understanding Business Cycle Fluctuations

Modern Monetary Policy and the Challenges Facing Central Bankers

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Exam 9: Derivatives: Futures, Options, and Swaps

If the price of an underlying asset has a standard deviation of zero:

Identify four factors that will cause the value of put options to decrease.

There's a call option written for 100 shares of GM stock for $85.00 a share, prior to the third Friday of October 2017: The option writer:

The time value of the option can best be defined as (excluding its intrinsic value):

Explain the concept of notional principal used in swaps.

Considering a call option, if the price of the underlying asset decreases:

The long position in a futures contract is the party that will:

Explain the difference between American and European options.

One key difference between options contracts and futures contracts is:

The principal in an interest rate swap is:

Explain the popularity of options in the sense of the potential gains and losses they offer.

If the current closing price in the stock of XYZ Inc., is $87.50 and the July expiration put options with a strike price of $80 are selling for $1.05, what is the intrinsic value of the option? What is the option premium?

Sue buys a futures contract for U.S.Treasury bonds and on the settlement date the interest rate on U.S.Treasury bonds is higher than Sue expected.Sue will have:

Suppose you purchase a put option to sell General Motors common stock at $80 per share in March.The current price of GM stock is $83 and the time value of the option is $1.What is the intrinsic value of the option?

The seller of a put option is transferring the risk:

What are the three main ways to categorize derivatives?

Explain why for speculation, the purchase of an option may be more attractive than a futures contract or the outright purchase of the underlying asset.

An Introduction to Money and the Financial System

Money and the Payments System

Financial Instruments, Financial Markets, and Financial Institutions

Future Value, Present Value, and Interest Rates

Understanding Risk

Bonds, Bond Prices, and the Determination of Interest Rates

The Risk and Term Structure of Interest Rates

Stocks, Stock Markets, and Market Efficiency

Foreign Exchange

The Economics of Financial Intermediation

Depository Institutions: Banks and Bank Management

Financial Industry Structure

Regulating the Financial System

Central Banks in the World Today

The Structure of Central Banks: The Federal Reserve and the European Central Bank

The Central Bank Balance Sheet and the Money Supply Process

Monetary Policy: Stabilizing the Domestic Economy

Exchange-Rate Policy and the Central Bank

Money Growth, Money Demand, and Modern Monetary Policy

Output, Inflation, and Monetary Policy

Understanding Business Cycle Fluctuations

Modern Monetary Policy and the Challenges Facing Central Bankers

Filters