Question 1

Interest-rate parity is a cost-of-carry model.

Accepted Answer

A) True 
 B)False

Question 2

Forward and futures prices will be equal prior to expiration if interest rates are certain or if futures prices and interest rates are correlated.

Accepted Answer

A) True 
 B)False

Question 3

The additional return earned by holding a commodity that is in short supply or a nonpecuniary gain from an asset is referred to as

Accepted Answer

A) the negative cost of carry 
B) the convenience yield 
C) cash-flow free gains 
D) gains on the underlying 
E) none of the above 
A) the negative cost of carry 
B) the convenience yield 
C) cash-flow free gains 
D) gains on the underlying 
E) none of the above

Question 4

Suppose you sell a three-month forward contract at $35.One month later,new forward contracts with similar terms are trading for $30.The continuously compounded risk-free rate is 10 percent.What is the value of your forward contract?

Accepted Answer

A) $4.96 
B) $5.00 
C) $4.92 
D) $4.55 
E) none of the above 
A) $4.96 
B) $5.00 
C) $4.92 
D) $4.55 
E) none of the above

Question 5

Holding everything else constant,dividends or interest on the underlying commodity would make a futures price be higher.

Accepted Answer

A) True 
 B)False

Question 6

Futures prices differ from spot prices by which one of the following factors?

Accepted Answer

A) the systematic risk 
B) the cost of carry 
C) the spread 
D) the risk premium 
E) none of the above 
A) the systematic risk 
B) the cost of carry 
C) the spread 
D) the risk premium 
E) none of the above

Question 7

What would be the spot price if a stock index futures price were $75,the risk-free rate were 10 percent,the continuously compounded dividend yield is 3 percent,and the futures contract 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

Why is the initial value of a futures contract zero?

Accepted Answer

A) the futures is immediately marked-to-market 
B) you do not pay anything for it 
C) the basis will converge to zero 
D) the expected profit is zero 
E) none of the above 
A) the futures is immediately marked-to-market 
B) you do not pay anything for it 
C) the basis will converge to zero 
D) the expected profit is zero 
E) none of the above

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

Under uncertainty and risk aversion,today's spot price equals

Accepted Answer

A) the expected future spot price,minus the storage costs,minus the interest forgone,minus the risk premium 
B) the expected future spot price,minus the storage costs,minus the interest forgone,plus the risk premium 
C) the expected future spot price,minus the storage costs,minus the risk premium 
D) the future spot price minus the cost of storage 
E) none of the above 
A) the expected future spot price,minus the storage costs,minus the interest forgone,minus the risk premium 
B) the expected future spot price,minus the storage costs,minus the interest forgone,plus the risk premium 
C) the expected future spot price,minus the storage costs,minus the risk premium 
D) the future spot price minus the cost of storage 
E) none of the above

Question 11

Put-call-futures parity is the relationship between the prices of puts,calls,and futures on an asset.Assuming a constant risk-free rate and European options,which of the following correctly expresses the relationship of put-call-futures parity?

Accepted Answer

A) Pe(S0,T)= Ce(S0,T)+ (X - f0(T))(1 + r)-T 
B) Pe(S0,T,X)= Ce(S0,T)- (X - f0(T))(1 + r)-T 
C) Pe(S0,T,X)= Ce(S0,T,X)+ (X - f0(T))(1 + r)-T 
D) Pe(S0,T,X)= Ce(S0,T,X)(X - f0(T))(1 + r)-T 
E) none of the above 
A) Pe(S0,T)= Ce(S0,T)+ (X - f0(T))(1 + r)-T 
B) Pe(S0,T,X)= Ce(S0,T)- (X - f0(T))(1 + r)-T 
C) Pe(S0,T,X)= Ce(S0,T,X)+ (X - f0(T))(1 + r)-T 
D) Pe(S0,T,X)= Ce(S0,T,X)(X - f0(T))(1 + r)-T 
E) none of the above

Question 12

Interest rate parity is essentially the same as

Accepted Answer

A) the cross-rate relationship 
B) the cost of carry relationship 
C) the Garman-Kohlhagen model 
D) all of the above 
E) none of the above 
A) the cross-rate relationship 
B) the cost of carry relationship 
C) the Garman-Kohlhagen model 
D) all of the above 
E) none of the above

Question 13

Suppose there is a risk premium of $0.50.The spot price is $20 and the futures price is $22.What is the expected spot price at expiration?

Accepted Answer

A) $21.50 
B) $22.50 
C) $20.50 
D) $24.50 
E) none of the above 
A) $21.50 
B) $22.50 
C) $20.50 
D) $24.50 
E) none of the above

Question 14

The daily settlement brings the value of a futures contract back to zero.

Accepted Answer

A) True 
 B)False

Question 15

The Black formula prices an option on an instrument with a positive cost of carry.

Accepted Answer

A) True 
 B)False

Question 16

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 17

A contango market is consistent with

Accepted Answer

A) a negative basis 
B) futures prices exceeding spot prices 
C) a positive cost of carry 
D) all of the above 
E) none of the above 
A) a negative basis 
B) futures prices exceeding spot prices 
C) a positive cost of carry 
D) all of the above 
E) none of the above

Question 18

As soon as a futures contract is marked to market,its value is zero.

Accepted Answer

A) True 
 B)False

Question 19

Suppose you buy a one-year forward contract at $65.At expiration,the spot price is $73.The risk-free rate is 10 percent.What is the value of the contract at expiration?

Accepted Answer

A) $8.00 
B) -$8.00 
C) $0.00 
D) $7.27 
E) none of the above 
A) $8.00 
B) -$8.00 
C) $0.00 
D) $7.27 
E) none of the above

Interest-rate parity is a cost-of-carry model.

Forward and futures prices will be equal prior to expiration if interest rates are certain or if futures prices and interest rates are correlated.

The additional return earned by holding a commodity that is in short supply or a nonpecuniary gain from an asset is referred to as

Suppose you sell a three-month forward contract at $35.One month later,new forward contracts with similar terms are trading for $30.The continuously compounded risk-free rate is 10 percent.What is the value of your forward contract?

Holding everything else constant,dividends or interest on the underlying commodity would make a futures price be higher.

Futures prices differ from spot prices by which one of the following factors?

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

Why is the initial value of a futures contract zero?

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

Under uncertainty and risk aversion,today's spot price equals

Put-call-futures parity is the relationship between the prices of puts,calls,and futures on an asset.Assuming a constant risk-free rate and European options,which of the following correctly expresses the relationship of put-call-futures parity?

Interest rate parity is essentially the same as

Suppose there is a risk premium of $0.50.The spot price is $20 and the futures price is $22.What is the expected spot price at expiration?

The daily settlement brings the value of a futures contract back to zero.

The Black formula prices an option on an instrument with a positive cost of carry.

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

A contango market is consistent with

As soon as a futures contract is marked to market,its value is zero.

Suppose you buy a one-year forward contract at $65.At expiration,the spot price is $73.The risk-free rate is 10 percent.What is the value of the contract 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

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 Appplications

Managing Risk in an Organization

Filters

Exam 8: Principles of Pricing Forwards,futures and Options on Futures

Interest-rate parity is a cost-of-carry model.

Forward and futures prices will be equal prior to expiration if interest rates are certain or if futures prices and interest rates are correlated.

The additional return earned by holding a commodity that is in short supply or a nonpecuniary gain from an asset is referred to as

Suppose you sell a three-month forward contract at $35.One month later,new forward contracts with similar terms are trading for $30.The continuously compounded risk-free rate is 10 percent.What is the value of your forward contract?

Holding everything else constant,dividends or interest on the underlying commodity would make a futures price be higher.

Futures prices differ from spot prices by which one of the following factors?

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

Why is the initial value of a futures contract zero?

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

Under uncertainty and risk aversion,today's spot price equals

Put-call-futures parity is the relationship between the prices of puts,calls,and futures on an asset.Assuming a constant risk-free rate and European options,which of the following correctly expresses the relationship of put-call-futures parity?

Interest rate parity is essentially the same as

Suppose there is a risk premium of $0.50.The spot price is $20 and the futures price is $22.What is the expected spot price at expiration?

The daily settlement brings the value of a futures contract back to zero.

The Black formula prices an option on an instrument with a positive cost of carry.

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

A contango market is consistent with

As soon as a futures contract is marked to market,its value is zero.

Suppose you buy a one-year forward contract at $65.At expiration,the spot price is $73.The risk-free rate is 10 percent.What is the value of the contract 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

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 Appplications

Managing Risk in an Organization

Filters