Question 1

An equity-linked deposit is a zero coupon instrument that offers to pay the face value at maturity.

Accepted Answer

A) True 
 B)False  True

Question 2

For LEPOs,a fall in the premium results in __________ the margin writer's account and __________ the option taker's account.

Accepted Answer

A)   reducing, decreasing
B)   increasing, increasing
C)   increasing; decreasing
D)   reducing; increasing D

Question 3

If the futures contract is the SPI 200 futures contract and the premium is quoted as 25,what is the premium?

Accepted Answer

A)    $120.50 \$ 120.50 $120.50 
B)    $312.50 \$ 312.50 $312.50 
C)    $500.00 \$500.00 $500.00 
D)    $625.00 \$ 625.00 $625.00   D

Question 4

Index warrant holders are generally not protected against changes in the composition of the underlying index.

Accepted Answer

A) True 
 B)False

Question 5

A barrier option may be _________ by _____________ a complementary barrier option from a/an____________ option.

Accepted Answer

A)   purchased; adding; American style
B)   priced; taking away; call
C)   constructed; subtracting; interest rate
D)   valued; subtracting standard

Question 6

The premium on a LEPO tends to move similarly to that of a futures contract.

Accepted Answer

A) True 
 B)False

Question 7

Portfolio insurance on a large share portfolio is most typically performed using a strategy involving:

Accepted Answer

A)   buying index futures
B)   selling LEPOs
C)   buying index put options
D)   selling index-linked bonds

Question 8

Barrier options exist within certain:

Accepted Answer

A)   time barriers
B)   price barriers
C)   exercise price barriers
D)   all of these options

Question 9

You have $500 000 invested in a property index,which has a current value of 4000.00.If a put option is available with an exercise price of 3800,standard deviation of returns is 20%,time to maturity is 6 months and risk free rate is 8% p.a. ,how many contracts are required for an exact hedge of this index? Assume an index point value of $10.00.

Accepted Answer

A)   13
B)   3
C)   40
D)   50

Question 10

In Australia,options that are heavily traded on the ASX 24 futures contracts include:

Accepted Answer

A)   Three-year Treasury bond futures contract
B)   The 10-year Treasury bond futures contract
C)   The 90-day bank-accepted bill futures contract
D)   All of these choices

Question 11

Low exercise price options (LEPOs)are physical delivery-based __________ options with __________.

Accepted Answer

A)   call; an exercise price of typically one cent
B)   call; a very low exercise price
C)   European-type; an exercise price of typically one cent
D)   European-type; a very low exercise price

Question 12

The contingent premium in the contingent premium option may be contingent on the:

Accepted Answer

A)   interest rate at expiry
B)   underlying asset price at expiry
C)   current interest rate
D)   current underlying asset price

Question 13

Company-issued options tend to arise because of:

Accepted Answer

A)   market demand
B)   a company's financing needs
C)   market reports
D)   all of these options

Question 14

Which of the following are limitations to the range of derivative contracts offered in over-the-counter markets?

Accepted Answer

A)   pricing of the instrument only
B)   understanding of instrument risk characteristics only
C)   pricing of the instrument and understanding of instrument risk characteristics
D)   all of the above

Question 15

An option that starts at some time in the future but which is paid for now is called a:

Accepted Answer

A)   forward start option
B)   compound option
C)   barrier option
D)   look back option

Question 16

Warrants are not typically priced using the futures cost-of-carry model.

Accepted Answer

A) True 
 B)False

Question 17

If the futures contract is the SPI 200 futures contract and the premium is quoted as 12.5,what is the premium?

Accepted Answer

A)    $120.50 \$ 120.50 $120.50 
B)    $312.50 \$ 312.50 $312.50 
C)    $625.00 \$ 625.00 $625.00 
D)    $1205.00 \$ 1205.00 $1205.00

Question 18

Credit default swaps (CDS)transfer credit risk from the protection seller to the protection buyer.

Accepted Answer

A) True 
 B)False

Question 19

An Asian call option gives its holder the right to ____________.

Accepted Answer

A)  buy the underlying asset at the exercise price on or before the expiration date
B)  buy the underlying asset at a price determined by the average stock price during some specified portion of the option's life
C)  sell the underlying asset at the exercise price on or before the expiration date
D)  sell the underlying asset at a price determined by the average stock price during some specified portion of the option's life

Question 20

______________ option pay-off is a function either of specified credit spreads or credit sensitive _______________.

Accepted Answer

A)   American-type; spreads
B)   European-type; securities
C)   Credit spread; asset prices
D)   European-type; markets

Exam 17: Advanced Issues in Options

An equity-linked deposit is a zero coupon instrument that offers to pay the face value at maturity.

For LEPOs,a fall in the premium results in the margin writer's account and the option taker's account.

If the futures contract is the SPI 200 futures contract and the premium is quoted as 25,what is the premium?

Index warrant holders are generally not protected against changes in the composition of the underlying index.

A barrier option may be ___ by _ a complementary barrier option from a/an______ option.

The premium on a LEPO tends to move similarly to that of a futures contract.

Portfolio insurance on a large share portfolio is most typically performed using a strategy involving:

Barrier options exist within certain:

In Australia,options that are heavily traded on the ASX 24 futures contracts include:

Low exercise price options (LEPOs) are physical delivery-based options with .

The contingent premium in the contingent premium option may be contingent on the:

Company-issued options tend to arise because of:

Which of the following are limitations to the range of derivative contracts offered in over-the-counter markets?

An option that starts at some time in the future but which is paid for now is called a:

Warrants are not typically priced using the futures cost-of-carry model.

If the futures contract is the SPI 200 futures contract and the premium is quoted as 12.5,what is the premium?

Credit default swaps (CDS)transfer credit risk from the protection seller to the protection buyer.

An Asian call option gives its holder the right to ____________.

option pay-off is a function either of specified credit spreads or credit sensitive _.

Exam 17: Advanced Issues in Options

An equity-linked deposit is a zero coupon instrument that offers to pay the face value at maturity.

For LEPOs,a fall in the premium results in __________ the margin writer's account and __________ the option taker's account.

If the futures contract is the SPI 200 futures contract and the premium is quoted as 25,what is the premium?

Index warrant holders are generally not protected against changes in the composition of the underlying index.

A barrier option may be _________ by _____________ a complementary barrier option from a/an____________ option.

The premium on a LEPO tends to move similarly to that of a futures contract.

Portfolio insurance on a large share portfolio is most typically performed using a strategy involving:

Barrier options exist within certain:

In Australia,options that are heavily traded on the ASX 24 futures contracts include:

Low exercise price options (LEPOs) are physical delivery-based __________ options with __________.

The contingent premium in the contingent premium option may be contingent on the:

Company-issued options tend to arise because of:

Which of the following are limitations to the range of derivative contracts offered in over-the-counter markets?

An option that starts at some time in the future but which is paid for now is called a:

Warrants are not typically priced using the futures cost-of-carry model.

If the futures contract is the SPI 200 futures contract and the premium is quoted as 12.5,what is the premium?

Credit default swaps (CDS)transfer credit risk from the protection seller to the protection buyer.

An Asian call option gives its holder the right to ____________.

______________ option pay-off is a function either of specified credit spreads or credit sensitive _______________.

For LEPOs,a fall in the premium results in the margin writer's account and the option taker's account.

A barrier option may be ___ by _ a complementary barrier option from a/an______ option.

Low exercise price options (LEPOs) are physical delivery-based options with .

option pay-off is a function either of specified credit spreads or credit sensitive _.