Question 1

The dividend yield on a stock option is similar to the foreign interest rate on a foreign currency option.

Accepted Answer

A) True 
 B)False

Question 2

What is the lower bound of a European call on a futures where f0 is the futures price and X is the exercise price? Assume f0 is greater than X.

Accepted Answer

A) the difference between f0 and X 
B) zero 
C) the present value of the difference between f0 and X 
D) the ratio of f0 to X 
E) none of the above 
A) the difference between f0 and X 
B) zero 
C) the present value of the difference between f0 and X 
D) the ratio of f0 to X 
E) none of the above

Question 3

A convenience yield is an explanation for a negative cost of carry.

Accepted Answer

A) True 
 B)False

Question 4

A futures contract can have negative value.

Accepted Answer

A) True 
 B)False

Question 5

Find the value of a European foreign currency call if the spot rate is $5.25,the exercise price is $5.40,the domestic interest rate is 6.1 percent,the foreign interest rate is 5.5 percent,the call expires in one month,and the volatility is .32.(The interest rates are continuously compounded. )

Accepted Answer

A) $0.167 
B) $0.15 
C) $0.140 
D) $0.131 
E) none of the above 
A) $0.167 
B) $0.15 
C) $0.140 
D) $0.131 
E) none of the above

Question 6

A synthetic put option on futures could be constructed by buying a call option on futures and selling the futures.

Accepted Answer

A) True 
 B)False

Question 7

What would be the spot price if a stock index futures price were $75,the risk-free rate were 10 percent,the dividend yield 3 percent,and the futures expires in three months?

Accepted Answer

A) $73.70 
B) $77.48 
C) $72.60 
D) $76.32 
E) none of the above 
A) $73.70 
B) $77.48 
C) $72.60 
D) $76.32 
E) none of the above

Question 8

Which of the following best describes normal contango?

Accepted Answer

A) the spot price is less than the futures price 
B) the futures price is less than the spot price 
C) the expected spot price is less than the futures price 
D) the cost of carry is negative 
E) none of the above 
A) the spot price is less than the futures price 
B) the futures price is less than the spot price 
C) the expected spot price is less than the futures price 
D) the cost of carry is negative 
E) none of the above

Question 9

If the U.S.risk-free rate is 4 percent and the Swiss risk-free rate is 5 percent,a U.S.investor can earn the Swiss rate by buying Swiss francs,selling a forward or futures contract and converting back to dollars at the contract's expiration.

Accepted Answer

A) True 
 B)False

Question 10

The cost of carry consists of all the following except

Accepted Answer

A) the risk-free rate 
B) the cost of storage 
C) insurance on the asset 
D) the risk premium 
E) none of the above 
A) the risk-free rate 
B) the cost of storage 
C) insurance on the asset 
D) the risk premium 
E) none of the above

The dividend yield on a stock option is similar to the foreign interest rate on a foreign currency option.

What is the lower bound of a European call on a futures where f₀ is the futures price and X is the exercise price? Assume f₀ is greater than X.

A convenience yield is an explanation for a negative cost of carry.

A futures contract can have negative value.

Find the value of a European foreign currency call if the spot rate is $5.25,the exercise price is $5.40,the domestic interest rate is 6.1 percent,the foreign interest rate is 5.5 percent,the call expires in one month,and the volatility is .32.(The interest rates are continuously compounded. )

A synthetic put option on futures could be constructed by buying a call option on futures and selling the futures.

What would be the spot price if a stock index futures price were $75,the risk-free rate were 10 percent,the dividend yield 3 percent,and the futures expires in three months?

Which of the following best describes normal contango?

If the U.S.risk-free rate is 4 percent and the Swiss risk-free rate is 5 percent,a U.S.investor can earn the Swiss rate by buying Swiss francs,selling a forward or futures contract and converting back to dollars at the contract's expiration.

The cost of carry consists of all the following except

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

The dividend yield on a stock option is similar to the foreign interest rate on a foreign currency option.

What is the lower bound of a European call on a futures where f0 is the futures price and X is the exercise price? Assume f0 is greater than X.

A convenience yield is an explanation for a negative cost of carry.

A futures contract can have negative value.

Find the value of a European foreign currency call if the spot rate is $5.25,the exercise price is $5.40,the domestic interest rate is 6.1 percent,the foreign interest rate is 5.5 percent,the call expires in one month,and the volatility is .32.(The interest rates are continuously compounded. )

A synthetic put option on futures could be constructed by buying a call option on futures and selling the futures.

What would be the spot price if a stock index futures price were $75,the risk-free rate were 10 percent,the dividend yield 3 percent,and the futures expires in three months?

Which of the following best describes normal contango?

If the U.S.risk-free rate is 4 percent and the Swiss risk-free rate is 5 percent,a U.S.investor can earn the Swiss rate by buying Swiss francs,selling a forward or futures contract and converting back to dollars at the contract's expiration.

The cost of carry consists of all the following except

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

What is the lower bound of a European call on a futures where f₀ is the futures price and X is the exercise price? Assume f₀ is greater than X.