Exam 9: Principles of Pricing Forwards, Futures, and Options on Futures

Determine the value of a European foreign currency put if the call is at $0.05,the spot rate is $0.5702,the exercise price is $0.59,the domestic interest rate is 5.75 percent,the foreign interest rate is 4.95 percent and the options expire in 45 days.

(Multiple Choice)

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Question 21

The risk-free rate is missing from d₁ in the Black model because it is effectively zero.

(True/False)

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Question 22

Normal backwardation and contango are mutually exclusive conditions for a market.

(True/False)

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Question 23

A normal market in which the futures price exceeds the spot price is described as a contango.

(True/False)

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Question 24

The futures price of a non-storable asset is determined by the cost of carry.

(True/False)

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Question 25

Find the price of a European call on a futures if the futures price is $106,the exercise price is $100,the continuously compounded risk-free rate is 7.2 percent,the volatility is .41 and the call expires in six months.

(Multiple Choice)

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Question 26

The spot price plus the cost of carry equals

(Multiple Choice)

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Question 27

The Black formula prices an option on an instrument with a positive cost of carry.

(True/False)

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Question 28

In financial futures markets,contango means that long-term interest rates are less than short-term interest rates.

(True/False)

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Question 29

Find the value of a European put option on futures if the futures price is 72,the exercise price is 70,the continuously compounded risk-free rate is 8.5 percent,the volatility is .38 and the time to expiration is three months.

(Multiple Choice)

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Question 30

The price of a futures spread reflects the cost of carry until the time the spread is closed.

(True/False)

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Question 31

Interest rate parity is essentially the same as

(Multiple Choice)

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Question 32

Suppose you sell a three-month forward contract at $35.One month later,new forward contracts are selling for $30.The risk-free rate is 10 percent.What is the value of your contract?

(Multiple Choice)

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Question 33

The dividends that are subtracted from the cost of storage to determine the cost of carry are actually the present value of future dividends.

(True/False)

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Question 34

Value is created in a futures contract with the passage of time.

(True/False)

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Question 35

A contango market is consistent with

(Multiple Choice)

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Question 36

If the U.S.government announced that it would allow the dollar to drop in foreign currency markets,the price of a euro put would probably fall.

(True/False)

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Question 37

American foreign currency calls will never be exercised early.

(True/False)

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Question 38

If one buys an asset,sells a futures,and holds the position until expiration,it is equivalent to selling the asset at the original futures price.

(True/False)

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Question 39

Find the forward rate of foreign currency Y if the spot rate is $4.50,the domestic interest rate is 6 percent,the foreign interest rate is 7 percent,and the forward contract is for nine months.

(Multiple Choice)

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Question 40

Showing 21 - 40 of 50

Determine the value of a European foreign currency put if the call is at $0.05,the spot rate is $0.5702,the exercise price is $0.59,the domestic interest rate is 5.75 percent,the foreign interest rate is 4.95 percent and the options expire in 45 days.

The risk-free rate is missing from d₁ in the Black model because it is effectively zero.

Normal backwardation and contango are mutually exclusive conditions for a market.

A normal market in which the futures price exceeds the spot price is described as a contango.

The futures price of a non-storable asset is determined by the cost of carry.

Find the price of a European call on a futures if the futures price is $106,the exercise price is $100,the continuously compounded risk-free rate is 7.2 percent,the volatility is .41 and the call expires in six months.

The spot price plus the cost of carry equals

The Black formula prices an option on an instrument with a positive cost of carry.

In financial futures markets,contango means that long-term interest rates are less than short-term interest rates.

Find the value of a European put option on futures if the futures price is 72,the exercise price is 70,the continuously compounded risk-free rate is 8.5 percent,the volatility is .38 and the time to expiration is three months.

The price of a futures spread reflects the cost of carry until the time the spread is closed.

Interest rate parity is essentially the same as

Suppose you sell a three-month forward contract at $35.One month later,new forward contracts are selling for $30.The risk-free rate is 10 percent.What is the value of your contract?

The dividends that are subtracted from the cost of storage to determine the cost of carry are actually the present value of future dividends.

Value is created in a futures contract with the passage of time.

A contango market is consistent with

If the U.S.government announced that it would allow the dollar to drop in foreign currency markets,the price of a euro put would probably fall.

American foreign currency calls will never be exercised early.

If one buys an asset,sells a futures,and holds the position until expiration,it is equivalent to selling the asset at the original futures price.

Find the forward rate of foreign currency Y if the spot rate is $4.50,the domestic interest rate is 6 percent,the foreign interest rate is 7 percent,and the forward contract is for nine months.

Introduction

Structure of Options Markets

Principles of Option Pricing

Option Pricing Models: the Binomial Model

Option Pricing Models: the Black-Scholes-Merton Model

Basic Option Strategies

Advanced Option Strategies

The Structure of Forward and Futures Markets

Futures Arbitrage Strategies

Forward and Futures Hedging, Spread, and Target Strategies

Swaps

Interest Rate Forwards and Options

Advanced Derivatives and Strategies

Financial Risk Management Techniques and Applications

Managing Risk in an Organization

Filters

Exam 9: Principles of Pricing Forwards, Futures, and Options on Futures

Determine the value of a European foreign currency put if the call is at $0.05,the spot rate is $0.5702,the exercise price is $0.59,the domestic interest rate is 5.75 percent,the foreign interest rate is 4.95 percent and the options expire in 45 days.

The risk-free rate is missing from d1 in the Black model because it is effectively zero.

Normal backwardation and contango are mutually exclusive conditions for a market.

A normal market in which the futures price exceeds the spot price is described as a contango.

The futures price of a non-storable asset is determined by the cost of carry.

Find the price of a European call on a futures if the futures price is $106,the exercise price is $100,the continuously compounded risk-free rate is 7.2 percent,the volatility is .41 and the call expires in six months.

The spot price plus the cost of carry equals

The Black formula prices an option on an instrument with a positive cost of carry.

In financial futures markets,contango means that long-term interest rates are less than short-term interest rates.

Find the value of a European put option on futures if the futures price is 72,the exercise price is 70,the continuously compounded risk-free rate is 8.5 percent,the volatility is .38 and the time to expiration is three months.

The price of a futures spread reflects the cost of carry until the time the spread is closed.

Interest rate parity is essentially the same as

Suppose you sell a three-month forward contract at $35.One month later,new forward contracts are selling for $30.The risk-free rate is 10 percent.What is the value of your contract?

The dividends that are subtracted from the cost of storage to determine the cost of carry are actually the present value of future dividends.

Value is created in a futures contract with the passage of time.

A contango market is consistent with

If the U.S.government announced that it would allow the dollar to drop in foreign currency markets,the price of a euro put would probably fall.

American foreign currency calls will never be exercised early.

If one buys an asset,sells a futures,and holds the position until expiration,it is equivalent to selling the asset at the original futures price.

Find the forward rate of foreign currency Y if the spot rate is $4.50,the domestic interest rate is 6 percent,the foreign interest rate is 7 percent,and the forward contract is for nine months.

Introduction

Structure of Options Markets

Principles of Option Pricing

Option Pricing Models: the Binomial Model

Option Pricing Models: the Black-Scholes-Merton Model

Basic Option Strategies

Advanced Option Strategies

The Structure of Forward and Futures Markets

Futures Arbitrage Strategies

Forward and Futures Hedging, Spread, and Target Strategies

Swaps

Interest Rate Forwards and Options

Advanced Derivatives and Strategies

Financial Risk Management Techniques and Applications

Managing Risk in an Organization

Filters

The risk-free rate is missing from d₁ in the Black model because it is effectively zero.