Test Bank: Chapter 1
Introduction
1. List three types of traders in futures, forward, and options markets
i.
_
ii.
_
iii.
_
2. Which of the following is not true (circle one)
a. When a CBOE call optio
CHAPTER 3
Hedging Strategies Using Futures
Practice Questions
Problem 3.1.
Under what circumstances are (a) a short hedge and (b) a long hedge appropriate?
A short hedge is appropriate when a company
CHAPTER 1
Introduction
Practice Questions
Problem 1.1
What is the difference between a long forward position and a short forward position?
When a trader enters into a long forward contract, she is agr
CHAPTER 6
Interest Rate Futures
Practice Questions
Problem 6.1.
A U.S. Treasury bond pays a 7% coupon on January 7 and July 7. How much interest
accrues per $100 of principal to the bond holder betwee
Test Bank: Chapter 16
Options on Stock Indices and Currencies
1. A portfolio manager in charge of a portfolio worth $10 million is concerned that the
market might decline rapidly during the next six m
Test Bank: Chapter 19
Volatility Smiles
1. In a volatility smile diagram
(i) What is plotted on the horizontal axis? _ _ _ _ _ _
(ii) What is plotted on the vertical axis? _ _ _ _ _ _
2. Indicate whet
Test Bank: Chapter 14
The Black-Scholes-Merton Model
1. The Black-Scholes-Merton model assumes (circle one)
(a) The return from the stock in a short period of time is lognormal
(b) The stock price at
Test Bank: Chapter 12
Binomial Trees
1. The current price of a non-dividend-paying stock is $30. Over the next six months
it is expected to rise to $36 or fall to $26. Assume the risk-free rate is zer
Test Bank: Chapter 25
Exotic Options
1. An Asian option is a term used to describe (Circle one):
(a) An option where the payoff depends on whether a barrier is hit
(b) An option where the payoff depen
Test Bank: Chapter 7
Swaps
1. Suppose that the yield curve is flat at 5% per annum with continuous compounding. A
swap with a notional principal of $100 million in which 6% is received and six-month
L
Test Bank: Chapter 10
Properties of Stock Options
1. Which of the following are always positively related to the price of a European
call option on a stock (circle three)
(a) The stock price
(b) The s
Test Bank: Chapter 4
Interest Rates
1. An interest rate is 15% per annum when expressed with annual compounding. What is
the equivalent rate with continuous compounding? Answer as a percent with two
d
Test Bank: Chapter 8
Securitization and the Credit Crisis of 2007
1. Suppose that ABSs are created from portfolios of subprime mortgages with the following
allocation of the principal to tranches: sen
Test Bank: Chapter 2
Mechanics of Futures and Forward Markets
1. Which of the following is true (circle one)
(a) Both forward and futures contracts are traded on exchanges.
(b) Forward contracts are t
Test Bank: Chapter 9
Mechanics of Options Markets
1. Consider an exchange traded put option to sell 100 shares for $20. Give (a) the
strike price and (b) the number of shares that can be sold after
(i
Test Bank: Chapter 5
The Determinants of Forward and Futures Prices
1. An investor shorts 100 shares when the share price is $50 and closes out the position
six months later when the share price is $4
Swaps Revisited
Chapter 32
Options, Futures, and Other
Derivatives, 7th Edition, Copyright
1
Valuation of Swaps
The
standard approach is to assume that
forward rates will be realized
This works for p
The Black-Scholes-Merton
Model
Chapter 13
Options, Futures, and Other
Derivatives, 7th Edition, Copyright
1
The Stock Price Assumption
Consider
a stock whose price is S
In a short period of time of l
Binomial Trees
Chapter 11
Options, Futures, and Other
Derivatives, 7th Edition, Copyright
1
A Simple Binomial Model
A
stock price is currently $20
In 3 months it will be either $22 or $18
Stock Price
Mechanics of Options
Markets
Chapter 8
Options, Futures, and Other
Derivatives, 7th Edition, Copyright
1
Review of Option Types
A
call is an option to buy
A put is an option to sell
A European option
Introduction
Chapter 1
Options, Futures, and Other
Derivatives, 7th Edition, Copyright
1
Size of OTC and Exchange-Traded Markets
(Figure 1.1, Page 3)
Source: Bank for International Settlements. Chart
CHAPTER 4
Interest Rates
Practice Questions
Problem 4.1.
A bank quotes you an interest rate of 14% per annum with quarterly compounding. What is
the equivalent rate with (a) continuous compounding and
CHAPTER 2
Mechanics of Futures Markets
Practice Questions
Problem 2.1.
Distinguish between the terms open interest and trading volume.
The open interest of a futures contract at a particular time is t