Question 1

Barrier options either begin or end when the stock hits a certain price.

Accepted Answer

A) True 
 B)False  True

Question 2

A PO is a security promising a stream of common stock dividend payments.

Accepted Answer

A) True 
 B)False  False

Question 3

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  True

Question 4

The opportunity cost of portfolio insurance is the difference in the value of the insured portfolio and the value of the uninsured portfolio when the market goes up.

Accepted Answer

A) True 
 B)False

Question 5

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 6

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

Accepted Answer

A) True 
 B)False

Question 7

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 8

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 9

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 10

Range floaters pay interest only if a specified interest rate falls outside of a given range.

Accepted Answer

A) True 
 B)False

Question 11

In a weather derivative,the number of days times the average temperature above 65 degrees Fahrenheit is called

Accepted Answer

A) temperature day count 
B) day-temps 
C) cooling degree days 
D) temp-days 
E) heating degree days 
A) temperature day count 
B) day-temps 
C) cooling degree days 
D) temp-days 
E) heating degree days

Question 12

If you buy an asset-or-nothing option and a cash-or-nothing option,you hold the equivalent of an ordinary European option.

Accepted Answer

A) True 
 B)False

Question 13

A diff swap pays off in one currency based on the difference between two interest rates from different countries.

Accepted Answer

A) True 
 B)False

Question 14

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

Accepted Answer

A) True 
 B)False

Question 15

Path-dependent options have payoffs that cannot be determined without examining exactly how the asset moved during the life of the option.

Accepted Answer

A) True 
 B)False

Question 16

Large stock price moves reduce the effectiveness of portfolio insurance.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following is a path-independent option

Accepted Answer

A) a fixed strike Asian call option 
B) a standard European call option 
C) an up-and-out call option 
D) an American put option 
E) none of the above 
A) a fixed strike Asian call option 
B) a standard European call option 
C) an up-and-out call option 
D) an American put option 
E) none of the above

Question 18

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 19

A constant maturity swap has which of the following characteristics

Accepted Answer

A) the swap maturity is held constant at a fixed number of years 
B) the floating payment is usually based on the rate on a Treasury note 
C) the swap calls for all payments to be made at its maturity 
D) the floating payment and the maturity are both constant 
E) none of the above 
A) the swap maturity is held constant at a fixed number of years 
B) the floating payment is usually based on the rate on a Treasury note 
C) the swap calls for all payments to be made at its maturity 
D) the floating payment and the maturity are both constant 
E) none of the above

Question 20

Answer questions 1 through 6 about insuring a portfolio identical to the S&P 500 worth $12,500,000 with a three-month horizon. The risk-free rate is 7 percent. Three-month T-bills are available at a price of $98.64 per $100 face value. The S&P 500 is at 385. Puts with an exercise price of 390 are available at a price of 13. Calls with an exercise price of 390 are available at a price of 13.125. Round off your answers to the nearest integer.
-If the S&P 500 ends up at 401,determine the upside capture.

Accepted Answer

A) 96.7 percent 
B) 96 percent 
C) 99.3 percent 
D) 94 percent 
E) 100 percent 
A) 96.7 percent 
B) 96 percent 
C) 99.3 percent 
D) 94 percent 
E) 100 percent

Barrier options either begin or end when the stock hits a certain price.

A PO is a security promising a stream of common stock dividend payments.

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

The opportunity cost of portfolio insurance is the difference in the value of the insured portfolio and the value of the uninsured portfolio when the market goes up.

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

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

Asian options are also called

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

Range floaters pay interest only if a specified interest rate falls outside of a given range.

In a weather derivative,the number of days times the average temperature above 65 degrees Fahrenheit is called

If you buy an asset-or-nothing option and a cash-or-nothing option,you hold the equivalent of an ordinary European option.

A diff swap pays off in one currency based on the difference between two interest rates from different countries.

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

Path-dependent options have payoffs that cannot be determined without examining exactly how the asset moved during the life of the option.

Large stock price moves reduce the effectiveness of portfolio insurance.

Which of the following is a path-independent option

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

A constant maturity swap has which of the following characteristics

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

Futures Arbitrage Strategies

Forward and Futures Hedging,spread,and Target Strategies

Swaps

Interest Rate Forwards and Options

Financial Risk Management Techniques and Appplications

Managing Risk in an Organization

Filters

Exam 13: Advanced Derivatives and Strategies

Barrier options either begin or end when the stock hits a certain price.

A PO is a security promising a stream of common stock dividend payments.

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

The opportunity cost of portfolio insurance is the difference in the value of the insured portfolio and the value of the uninsured portfolio when the market goes up.

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

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

Asian options are also called

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

Range floaters pay interest only if a specified interest rate falls outside of a given range.

In a weather derivative,the number of days times the average temperature above 65 degrees Fahrenheit is called

If you buy an asset-or-nothing option and a cash-or-nothing option,you hold the equivalent of an ordinary European option.

A diff swap pays off in one currency based on the difference between two interest rates from different countries.

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

Path-dependent options have payoffs that cannot be determined without examining exactly how the asset moved during the life of the option.

Large stock price moves reduce the effectiveness of portfolio insurance.

Which of the following is a path-independent option

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

A constant maturity swap has which of the following characteristics

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

Futures Arbitrage Strategies

Forward and Futures Hedging,spread,and Target Strategies

Swaps

Interest Rate Forwards and Options

Financial Risk Management Techniques and Appplications

Managing Risk in an Organization

Filters