Question 1

The opportunity to lock in the invoice price and purchase the deliverable Treasury bond later is called

Accepted Answer

A) bond insurance 
B) program trading 
C) the wild card 
D) delivery arbitrage 
E) none of the above 
A) bond insurance 
B) program trading 
C) the wild card 
D) delivery arbitrage 
E) none of the above

Question 2

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 3

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 4

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

Accepted Answer

A) True 
 B)False

Question 5

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 6

Which of the following is a form of program trading?

Accepted Answer

A) index arbitrage 
B) wild card arbitrage 
C) triangular arbitrage 
D) timing arbitrage 
E) none of the above 
A) index arbitrage 
B) wild card arbitrage 
C) triangular arbitrage 
D) timing arbitrage 
E) none of the above

Question 7

The unusual volatility that sometimes occurs at stock index futures expirations is because of the greater uncertainty.

Accepted Answer

A) True 
 B)False

Question 8

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 9

Determine the amount by which a stock index futures is mispriced if the stock index is at 200,the futures is at 202.5,the risk-free rate is 6.45 percent,the dividend yield is 2.75 percent,and the contract expires in three months.

Accepted Answer

A) underpriced by 0.64 
B) overpriced by 2.5 
C) overpriced by 9.76 
D) overpriced by 0.64 
E) underpriced by 2.5 
A) underpriced by 0.64 
B) overpriced by 2.5 
C) overpriced by 9.76 
D) overpriced by 0.64 
E) underpriced by 2.5

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

Determine the annualized implied repo rate on a Treasury bond spread in which the March is bought at 98.7 and the June is sold at 99.5.The March CF is 1.225 and the June CF is 1.24.The accrued interest as of March 1 is 0.75 and the accrued interest as of June 1 is 1.22.

Accepted Answer

A) 5.21 percent 
B) 10.03 percent 
C) 1.28 percent 
D) 2.42 percent 
E) 0.81 percent 
A) 5.21 percent 
B) 10.03 percent 
C) 1.28 percent 
D) 2.42 percent 
E) 0.81 percent

Question 12

If you buy both a 30-day Eurodollar CD paying 6.7 percent and a 90-day futures on a 90-day Eurodollar CD with a price implying a yield of 7.2 percent,what is your total annualized return? (Both yields are based on 360-day years. )

Accepted Answer

A) 7.25 percent 
B) 7.07 percent 
C) 10.15 percent 
D) 7.75 percent 
E) 6.95 percent 
A) 7.25 percent 
B) 7.07 percent 
C) 10.15 percent 
D) 7.75 percent 
E) 6.95 percent

Question 13

Which one of the following options is not associated with the Treasury bond futures contract?

Accepted Answer

A) end-of-the-month 
B) spread option 
C) wild card option 
D) quality option 
E) none of the above 
A) end-of-the-month 
B) spread option 
C) wild card option 
D) quality option 
E) none of the above

Question 14

Stock index arbitrage will earn,at no risk,the difference between the futures price and the theoretical futures price.

Accepted Answer

A) True 
 B)False

Question 15

The wild card option exists because of the difference in the closing times of the spot and futures markets for Treasury bills.

Accepted Answer

A) True 
 B)False

Question 16

Suppose you observe the spot euro at $1.38/€ and the three month euro futures at $1.379/€.Based on carry arbitrage,you conclude

Accepted Answer

A) this futures market is inefficient because the futures price is below the spot price 
B) this futures market is indicating that the spot price is expected to fall 
C) the spot price is too high relative to the observed futures price 
D) the risk-free rate in Europe is higher than the risk-free rate in the U.S. 
E) none of the above 
A) this futures market is inefficient because the futures price is below the spot price 
B) this futures market is indicating that the spot price is expected to fall 
C) the spot price is too high relative to the observed futures price 
D) the risk-free rate in Europe is higher than the risk-free rate in the U.S. 
E) none of the above

Question 17

Suppose you observe the spot euro at $1.38/€,the U.S.risk-free interest rate of 0.25% (continuously compounded),and the European risk-free interest rate of 0.75% (continuously compounded).Identify the theoretical value of a six month foreign exchange futures contract (select the closest answer).

Accepted Answer

A) $1.3815/€ 
B) $1.3765/€ 
C) $1.3785/€ 
D) $1.3825/€ 
E) $1.3755/€ 
A) $1.3815/€ 
B) $1.3765/€ 
C) $1.3785/€ 
D) $1.3825/€ 
E) $1.3755/€

Question 18

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 19

A deliverable Treasury bond has accrued interest of 3.42 per $100,a coupon of 9.5 percent,a price of 135 and a conversion factor of 1.195.The futures price is 112.25.What is the invoice amount?

Accepted Answer

A) 137.56 
B) 143.64 
C) 161.33 
D) 134.14 
E) none of the above 
A) 137.56 
B) 143.64 
C) 161.33 
D) 134.14 
E) none of the above

Question 20

The conversion factor is the price of a bond with a face value of $1,coupon and maturity equal to that of the deliverable bond,and yield of 6 percent.

Accepted Answer

A) True 
 B)False

The opportunity to lock in the invoice price and purchase the deliverable Treasury bond later is called

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.

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

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

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

Which of the following is a form of program trading?

The unusual volatility that sometimes occurs at stock index futures expirations is because of the greater uncertainty.

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

Determine the amount by which a stock index futures is mispriced if the stock index is at 200,the futures is at 202.5,the risk-free rate is 6.45 percent,the dividend yield is 2.75 percent,and the contract expires in three months.

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

Determine the annualized implied repo rate on a Treasury bond spread in which the March is bought at 98.7 and the June is sold at 99.5.The March CF is 1.225 and the June CF is 1.24.The accrued interest as of March 1 is 0.75 and the accrued interest as of June 1 is 1.22.

If you buy both a 30-day Eurodollar CD paying 6.7 percent and a 90-day futures on a 90-day Eurodollar CD with a price implying a yield of 7.2 percent,what is your total annualized return? (Both yields are based on 360-day years. )

Which one of the following options is not associated with the Treasury bond futures contract?

Stock index arbitrage will earn,at no risk,the difference between the futures price and the theoretical futures price.

The wild card option exists because of the difference in the closing times of the spot and futures markets for Treasury bills.

Suppose you observe the spot euro at $1.38/€ and the three month euro futures at $1.379/€.Based on carry arbitrage,you conclude

Suppose you observe the spot euro at $1.38/€,the U.S.risk-free interest rate of 0.25% (continuously compounded),and the European risk-free interest rate of 0.75% (continuously compounded).Identify the theoretical value of a six month foreign exchange futures contract (select the closest answer).

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

A deliverable Treasury bond has accrued interest of 3.42 per $100,a coupon of 9.5 percent,a price of 135 and a conversion factor of 1.195.The futures price is 112.25.What is the invoice amount?

The conversion factor is the price of a bond with a face value of $1,coupon and maturity equal to that of the deliverable bond,and yield of 6 percent.

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

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 Appplications

Managing Risk in an Organization

Filters

Exam 9: Futures Arbitrage Strategies

The opportunity to lock in the invoice price and purchase the deliverable Treasury bond later is called

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.

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

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

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

Which of the following is a form of program trading?

The unusual volatility that sometimes occurs at stock index futures expirations is because of the greater uncertainty.

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

Determine the amount by which a stock index futures is mispriced if the stock index is at 200,the futures is at 202.5,the risk-free rate is 6.45 percent,the dividend yield is 2.75 percent,and the contract expires in three months.

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

Determine the annualized implied repo rate on a Treasury bond spread in which the March is bought at 98.7 and the June is sold at 99.5.The March CF is 1.225 and the June CF is 1.24.The accrued interest as of March 1 is 0.75 and the accrued interest as of June 1 is 1.22.

If you buy both a 30-day Eurodollar CD paying 6.7 percent and a 90-day futures on a 90-day Eurodollar CD with a price implying a yield of 7.2 percent,what is your total annualized return? (Both yields are based on 360-day years. )

Which one of the following options is not associated with the Treasury bond futures contract?

Stock index arbitrage will earn,at no risk,the difference between the futures price and the theoretical futures price.

The wild card option exists because of the difference in the closing times of the spot and futures markets for Treasury bills.

Suppose you observe the spot euro at $1.38/€ and the three month euro futures at $1.379/€.Based on carry arbitrage,you conclude

Suppose you observe the spot euro at $1.38/€,the U.S.risk-free interest rate of 0.25% (continuously compounded),and the European risk-free interest rate of 0.75% (continuously compounded).Identify the theoretical value of a six month foreign exchange futures contract (select the closest answer).

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

A deliverable Treasury bond has accrued interest of 3.42 per $100,a coupon of 9.5 percent,a price of 135 and a conversion factor of 1.195.The futures price is 112.25.What is the invoice amount?

The conversion factor is the price of a bond with a face value of $1,coupon and maturity equal to that of the deliverable bond,and yield of 6 percent.

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

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 Appplications

Managing Risk in an Organization

Filters