Question 1

Equity-linked debt is equivalent to a zero coupon bond and a given number of call options.

Accepted Answer

A) True 
 B)False

Question 2

Asian options provide the right to give up U.S.dollars and receive an Asian stock return.

Accepted Answer

A) True 
 B)False

Question 3

An inverse floater shortens its maturity when the underlying rate hits a certain level.

Accepted Answer

A) True 
 B)False

Question 4

The rate on a constant maturity swap is based on a U.S.Treasury security of a given maturity.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following statements is correct about cash-or-nothing options

Accepted Answer

A) they are subject to no credit risk 
B) they must be priced by the binomial model 
C) they have lower upside gains and lower downside losses than ordinary options 
D) they are equivalent to short positions in asset-or-nothing options 
E) none of the above 
A) they are subject to no credit risk 
B) they must be priced by the binomial model 
C) they have lower upside gains and lower downside losses than ordinary options 
D) they are equivalent to short positions in asset-or-nothing options 
E) none of the above

Question 6

A range floater is a security with which of the following characteristics

Accepted Answer

A) the payments range from a given maximum to a given minimum 
B) the maturity is limited to a fixed range 
C) its payments are based on whether the rate stays within a range 
D) all of the above 
E) none of the above 
A) the payments range from a given maximum to a given minimum 
B) the maturity is limited to a fixed range 
C) its payments are based on whether the rate stays within a range 
D) all of the above 
E) none of the above

Question 7

A lookback call option provides the right

Accepted Answer

A) to change the stock on which the option is written 
B) to buy the stock at its lowest price over the option's life 
C) to insure a stock against loss 
D) to change your mind about the exercise price 
E) none of the above 
A) to change the stock on which the option is written 
B) to buy the stock at its lowest price over the option's life 
C) to insure a stock against loss 
D) to change your mind about the exercise price 
E) none of the above

Question 8

Mortgage-backed securities are widely used to make home ownership more affordable.

Accepted Answer

A) True 
 B)False

Question 9

What is the minimum value of the insured portfolio?

Accepted Answer

A) $16,672,344 
B) $12,500,000 
C) $12,091,709 
D) $12,244,898 
E) $13,375,000 
A) $16,672,344 
B) $12,500,000 
C) $12,091,709 
D) $12,244,898 
E) $13,375,000

Question 10

Modified lookback options fix the exercise price and replace the expiration price of the asset with the maximum or minimum price.

Accepted Answer

A) True 
 B)False

Question 11

The primary problem in pricing electricity derivatives is that

Accepted Answer

A) the volatility cannot be measured 
B) the underlying asset cannot be stored 
C) electricity is a homogeneous product 
D) the demand for electricity is unpredictable 
E) the electricity market is unregulated 
A) the volatility cannot be measured 
B) the underlying asset cannot be stored 
C) electricity is a homogeneous product 
D) the demand for electricity is unpredictable 
E) the electricity market is unregulated

Question 12

Large stock price moves reduce the effectiveness of portfolio insurance.

Accepted Answer

A) True 
 B)False

Question 13

A chooser option is similar to what other type of option strategy

Accepted Answer

A) put-call parity 
B) a covered call 
C) a protective put 
D) a combination bull and bear spread 
E) none of the above 
A) put-call parity 
B) a covered call 
C) a protective put 
D) a combination bull and bear spread 
E) none of the above

Question 14

A standard (Black-Scholes)European option is equivalent to a combination of a down-and-out call plus a down-and-out put.

Accepted Answer

A) True 
 B)False

Question 15

Because a chooser option enables the holder to end up with either a put or a call,it is equivalent to a straddle.

Accepted Answer

A) True 
 B)False

Question 16

How many puts should be used to insure this portfolio?

Accepted Answer

A) 122,584 
B) 31,397 
C) 62,814 
D) 961,538 
E) 32,468 
A) 122,584 
B) 31,397 
C) 62,814 
D) 961,538 
E) 32,468

Question 17

A quanto is a derivative involving two currencies in which the payoff is based on a fixed exchange rate.

Accepted Answer

A) True 
 B)False

Question 18

Which of the following statements about mortgage-backed security strips is true?

Accepted Answer

A) both interest-only and principal-only strips are subject to pre-payment risk 
B) only principal-only strips are subject to prepayment risk 
C) only interest-only strips are subject to prepayment risk 
D) the prepayment risk of interest-only and principal-only strips is precisely offsetting 
E) none of the above 
A) both interest-only and principal-only strips are subject to pre-payment risk 
B) only principal-only strips are subject to prepayment risk 
C) only interest-only strips are subject to prepayment risk 
D) the prepayment risk of interest-only and principal-only strips is precisely offsetting 
E) none of the above

Question 19

Asian options are also called

Accepted Answer

A) average price options 
B) Pacific options 
C) installment options 
D) no-regrets options 
E) none of the above 
A) average price options 
B) Pacific options 
C) installment options 
D) no-regrets options 
E) none of the above

Question 20

The cost of a break forward contract is a result of the possibility of having a negative value at expiration.

Accepted Answer

A) True 
 B)False

Equity-linked debt is equivalent to a zero coupon bond and a given number of call options.

Asian options provide the right to give up U.S.dollars and receive an Asian stock return.

An inverse floater shortens its maturity when the underlying rate hits a certain level.

The rate on a constant maturity swap is based on a U.S.Treasury security of a given maturity.

Which of the following statements is correct about cash-or-nothing options

A range floater is a security with which of the following characteristics

A lookback call option provides the right

Mortgage-backed securities are widely used to make home ownership more affordable.

What is the minimum value of the insured portfolio?

Modified lookback options fix the exercise price and replace the expiration price of the asset with the maximum or minimum price.

The primary problem in pricing electricity derivatives is that

Large stock price moves reduce the effectiveness of portfolio insurance.

A chooser option is similar to what other type of option strategy

A standard (Black-Scholes)European option is equivalent to a combination of a down-and-out call plus a down-and-out put.

Because a chooser option enables the holder to end up with either a put or a call,it is equivalent to a straddle.

How many puts should be used to insure this portfolio?

A quanto is a derivative involving two currencies in which the payoff is based on a fixed exchange rate.

Which of the following statements about mortgage-backed security strips is true?

Asian options are also called

The cost of a break forward contract is a result of the possibility of having a negative value at expiration.

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

Principles of Pricing Forwards, Futures, and Options on Futures

Futures Arbitrage Strategies

Forward and Futures Hedging, Spread, and Target Strategies

Swaps

Interest Rate Forwards and Options

Financial Risk Management Techniques and Applications

Managing Risk in an Organization

Filters

Exam 14: Advanced Derivatives and Strategies

Equity-linked debt is equivalent to a zero coupon bond and a given number of call options.

Asian options provide the right to give up U.S.dollars and receive an Asian stock return.

An inverse floater shortens its maturity when the underlying rate hits a certain level.

The rate on a constant maturity swap is based on a U.S.Treasury security of a given maturity.

Which of the following statements is correct about cash-or-nothing options

A range floater is a security with which of the following characteristics

A lookback call option provides the right

Mortgage-backed securities are widely used to make home ownership more affordable.

What is the minimum value of the insured portfolio?

Modified lookback options fix the exercise price and replace the expiration price of the asset with the maximum or minimum price.

The primary problem in pricing electricity derivatives is that

Large stock price moves reduce the effectiveness of portfolio insurance.

A chooser option is similar to what other type of option strategy

A standard (Black-Scholes)European option is equivalent to a combination of a down-and-out call plus a down-and-out put.

Because a chooser option enables the holder to end up with either a put or a call,it is equivalent to a straddle.

How many puts should be used to insure this portfolio?

A quanto is a derivative involving two currencies in which the payoff is based on a fixed exchange rate.

Which of the following statements about mortgage-backed security strips is true?

Asian options are also called

The cost of a break forward contract is a result of the possibility of having a negative value at expiration.

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

Principles of Pricing Forwards, Futures, and Options on Futures

Futures Arbitrage Strategies

Forward and Futures Hedging, Spread, and Target Strategies

Swaps

Interest Rate Forwards and Options

Financial Risk Management Techniques and Applications

Managing Risk in an Organization

Filters