Question 1

If the futures price at 3:00 p.m.is 122,the spot price is 142.5 and the CF is 1.1575,by how much must the spot price fall by 5:00 p.m.to justify delivery?

Accepted Answer

A) 1.285 
B) 1.1102 
C) 20.50 
D) 17.71 
E) 42.94 
A) 1.285 
B) 1.1102 
C) 20.50 
D) 17.71 
E) 42.94 A

Question 2

The timing option results from the difference in closing times of the spot and futures market.

Accepted Answer

A) True 
 B)False  False

Question 3

The implied repo rate is the return on an overnight repurchase agreement.

Accepted Answer

A) True 
 B)False  False

Question 4

Determine the conversion factor for delivery of the 7 1/4's off May 15,2026 on the March 2010 T-bond futures contract.

Accepted Answer

A) 1.225 
B) 0.932 
C) 1.083 
D) 1.127 
E) 1.509 
A) 1.225 
B) 0.932 
C) 1.083 
D) 1.127 
E) 1.509

Question 5

The end-of-the-month option is

Accepted Answer

A) the right to exercise an option on the last day of the month 
B) an option expiring on the last day of the month 
C) the right to deliver during the last seven business days of the month 
D) an option that trades only at the end of the month 
E) none of the above 
A) the right to exercise an option on the last day of the month 
B) an option expiring on the last day of the month 
C) the right to deliver during the last seven business days of the month 
D) an option that trades only at the end of the month 
E) none of the above

Question 6

It is important to identify the cheapest bond to deliver because it is the one the futures contract is priced off of.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following is not needed when calculating the implied repo rate for stock index futures?

Accepted Answer

A) futures price 
B) conversion factor 
C) time-to-expiration 
D) spot price 
E) none of the above 
A) futures price 
B) conversion factor 
C) time-to-expiration 
D) spot price 
E) none of the above

Question 8

If a stock index futures is at 455 and the pricing model says it should be at 458,an arbitrageur should buy the futures and sell short the stock.

Accepted Answer

A) True 
 B)False

Question 9

The invoice price of a Treasury bond futures contract is based on the settlement price on position day and the conversion factor.

Accepted Answer

A) True 
 B)False

Question 10

The coupon assumption for the conversion factor is 8 percent.

Accepted Answer

A) True 
 B)False

Question 11

An increase in dividends will lower the theoretical value of the stock index futures contract.

Accepted Answer

A) True 
 B)False

Question 12

On the basis of liquidity,the best futures contract for hedging short-term interest rates is

Accepted Answer

A) Treasury bills 
B) the prime rate 
C) commercial paper 
D) Eurodollars 
E) none of the above 
A) Treasury bills 
B) the prime rate 
C) commercial paper 
D) Eurodollars 
E) none of the above

Question 13

Suppose the number of days between two coupon payment dates is 181,the number of days since the last coupon payment is 100,the annual coupon rate is 8 percent and the par value is $100,000,then the accrued interest is $2,210.

Accepted Answer

A) True 
 B)False

Question 14

The transaction in which money is borrowed by selling a security and promising to buy it back in several weeks is called a

Accepted Answer

A) term repo 
B) overnight repo 
C) term arbitrage 
D) MOB spread 
E) none of the above 
A) term repo 
B) overnight repo 
C) term arbitrage 
D) MOB spread 
E) none of the above

Question 15

If the invoice price of bond A is 122,the invoice price of bond B is 95,the adjusted spot price of bond A is 127 and the adjusted spot price of bond B is 97,the better bond to deliver is bond B.

Accepted Answer

A) True 
 B)False

Question 16

Use the following information to answer questions .On October 1,the one-month LIBOR rate is 4.50 percent and the two month LIBOR rate is 5.00 percent.The November Fed funds futures is quoted at 94.50.The contract size is $5,000,000.
-The dollar value of a one basis point rise in the Fed funds futures price is

Accepted Answer

A) -$25.00 
B) $41.67 
C) $5,000 
D) $25.00 
E) none of the above 
A) -$25.00 
B) $41.67 
C) $5,000 
D) $25.00 
E) none of the above

Question 17

The implied repo rate on a spread is the implicit return on a risk-free spread transaction.

Accepted Answer

A) True 
 B)False

Question 18

The timing option will lead to early delivery if the coupon rate is higher than the repo rate.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following is not a risk of program trading?

Accepted Answer

A) the stocks cannot be simultaneously sold at expiration 
B) fractional contracts cannot be purchased or sold 
C) the dividends are not certain 
D) the stocks cannot be purchased simultaneously 
E) none of the above 
A) the stocks cannot be simultaneously sold at expiration 
B) fractional contracts cannot be purchased or sold 
C) the dividends are not certain 
D) the stocks cannot be purchased simultaneously 
E) none of the above

Question 20

The most common means of financing a cash-and-carry arbitrage is a repurchase agreement.

Accepted Answer

A) True 
 B)False

If the futures price at 3:00 p.m.is 122,the spot price is 142.5 and the CF is 1.1575,by how much must the spot price fall by 5:00 p.m.to justify delivery?

The timing option results from the difference in closing times of the spot and futures market.

The implied repo rate is the return on an overnight repurchase agreement.

Determine the conversion factor for delivery of the 7 1/4's off May 15,2026 on the March 2010 T-bond futures contract.

The end-of-the-month option is

It is important to identify the cheapest bond to deliver because it is the one the futures contract is priced off of.

Which of the following is not needed when calculating the implied repo rate for stock index futures?

If a stock index futures is at 455 and the pricing model says it should be at 458,an arbitrageur should buy the futures and sell short the stock.

The invoice price of a Treasury bond futures contract is based on the settlement price on position day and the conversion factor.

The coupon assumption for the conversion factor is 8 percent.

An increase in dividends will lower the theoretical value of the stock index futures contract.

On the basis of liquidity,the best futures contract for hedging short-term interest rates is

Suppose the number of days between two coupon payment dates is 181,the number of days since the last coupon payment is 100,the annual coupon rate is 8 percent and the par value is $100,000,then the accrued interest is $2,210.

The transaction in which money is borrowed by selling a security and promising to buy it back in several weeks is called a

If the invoice price of bond A is 122,the invoice price of bond B is 95,the adjusted spot price of bond A is 127 and the adjusted spot price of bond B is 97,the better bond to deliver is bond B.

The implied repo rate on a spread is the implicit return on a risk-free spread transaction.

The timing option will lead to early delivery if the coupon rate is higher than the repo rate.

Which of the following is not a risk of program trading?

The most common means of financing a cash-and-carry arbitrage is a repurchase agreement.

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

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 10: Futures Arbitrage Strategies

If the futures price at 3:00 p.m.is 122,the spot price is 142.5 and the CF is 1.1575,by how much must the spot price fall by 5:00 p.m.to justify delivery?

The timing option results from the difference in closing times of the spot and futures market.

The implied repo rate is the return on an overnight repurchase agreement.

Determine the conversion factor for delivery of the 7 1/4's off May 15,2026 on the March 2010 T-bond futures contract.

The end-of-the-month option is

It is important to identify the cheapest bond to deliver because it is the one the futures contract is priced off of.

Which of the following is not needed when calculating the implied repo rate for stock index futures?

If a stock index futures is at 455 and the pricing model says it should be at 458,an arbitrageur should buy the futures and sell short the stock.

The invoice price of a Treasury bond futures contract is based on the settlement price on position day and the conversion factor.

The coupon assumption for the conversion factor is 8 percent.

An increase in dividends will lower the theoretical value of the stock index futures contract.

On the basis of liquidity,the best futures contract for hedging short-term interest rates is

Suppose the number of days between two coupon payment dates is 181,the number of days since the last coupon payment is 100,the annual coupon rate is 8 percent and the par value is $100,000,then the accrued interest is $2,210.

The transaction in which money is borrowed by selling a security and promising to buy it back in several weeks is called a

If the invoice price of bond A is 122,the invoice price of bond B is 95,the adjusted spot price of bond A is 127 and the adjusted spot price of bond B is 97,the better bond to deliver is bond B.

The implied repo rate on a spread is the implicit return on a risk-free spread transaction.

The timing option will lead to early delivery if the coupon rate is higher than the repo rate.

Which of the following is not a risk of program trading?

The most common means of financing a cash-and-carry arbitrage is a repurchase agreement.

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

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