Question 1

The cost of portfolio insurance is the return foregone if the market moves up.

Accepted Answer

A) True 
 B)False

Question 2

An equity forward contract is

Accepted Answer

A) a forward contract on LIBOR secured by a stock as collateral 
B) a futures contract on a stock index that is not marked-to-market 
C) a call option on a stock with greater downside risk than an ordinary call 
D) a forward contract whose payoff is determined by a stock or index 
E) none of the above 
A) a forward contract on LIBOR secured by a stock as collateral 
B) a futures contract on a stock index that is not marked-to-market 
C) a call option on a stock with greater downside risk than an ordinary call 
D) a forward contract whose payoff is determined by a stock or index 
E) none of the above

Question 3

The number of possible final average prices in an Asian option for a four period binomial model is

Accepted Answer

A) 8 
B) 4 
C) 16 
D) 32 
E) none of the above 
A) 8 
B) 4 
C) 16 
D) 32 
E) none of the above

Question 4

If the insured portfolio were dynamically hedged with T-bills,how many T-bills would be used?

Accepted Answer

A) 16,332 
B) 63,002 
C) 126,723 
D) 61,672 
E) 32,468 
A) 16,332 
B) 63,002 
C) 126,723 
D) 61,672 
E) 32,468

Question 5

Weather derivative payoffs can be based on each of the following variables except

Accepted Answer

A) temperature above a given level 
B) inches of snowfall 
C) total value of insurance claims 
D) temperature below a given level 
E) sunshine 
A) temperature above a given level 
B) inches of snowfall 
C) total value of insurance claims 
D) temperature below a given level 
E) sunshine

Question 6

Portfolio insurance using stock and T-bills is less expensive than using stock and puts.

Accepted Answer

A) True 
 B)False

Question 7

The Black-Scholes model is not appropriate for pricing electricity derivatives.

Accepted Answer

A) True 
 B)False

Question 8

If the stock price is currently 36,the exercise price is 35 and the stock ends up at 44,the value of an asset-or-nothing option at expiration is

Accepted Answer

A) 35 
B) 8 
C) 9 
D) 44 
E) none of the above 
A) 35 
B) 8 
C) 9 
D) 44 
E) none of the above

Question 9

Suppose a firm offers an equity-linked security.The face value is $1 million and its payoff is based on any appreciation in an equity index currently at 855.50.It has determined that of the $1 million raised,it can structure the option component so that its value is $135,000.Currently an at-the-money call option is worth $125.What percentage of the gain in the index can it offer?

Accepted Answer

A) 92 percent 
B) 100 percent 
C) 50 percent 
D) 8.23 percent 
E) none of the above 
A) 92 percent 
B) 100 percent 
C) 50 percent 
D) 8.23 percent 
E) none of the above

Question 10

Interest-only strips lose the some or all of the end of their stream of cash flows if prepayment occurs.

Accepted Answer

A) True 
 B)False

The cost of portfolio insurance is the return foregone if the market moves up.

An equity forward contract is

The number of possible final average prices in an Asian option for a four period binomial model is

If the insured portfolio were dynamically hedged with T-bills,how many T-bills would be used?

Weather derivative payoffs can be based on each of the following variables except

Portfolio insurance using stock and T-bills is less expensive than using stock and puts.

The Black-Scholes model is not appropriate for pricing electricity derivatives.

If the stock price is currently 36,the exercise price is 35 and the stock ends up at 44,the value of an asset-or-nothing option at expiration is

Interest-only strips lose the some or all of the end of their stream of cash flows if prepayment occurs.

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

The cost of portfolio insurance is the return foregone if the market moves up.

An equity forward contract is

The number of possible final average prices in an Asian option for a four period binomial model is

If the insured portfolio were dynamically hedged with T-bills,how many T-bills would be used?

Weather derivative payoffs can be based on each of the following variables except

Portfolio insurance using stock and T-bills is less expensive than using stock and puts.

The Black-Scholes model is not appropriate for pricing electricity derivatives.

If the stock price is currently 36,the exercise price is 35 and the stock ends up at 44,the value of an asset-or-nothing option at expiration is

Interest-only strips lose the some or all of the end of their stream of cash flows if prepayment occurs.

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