1) A one-year forward contract is an agreement where

A) One side has the right to buy an asset for a certain price in one year's time

B) One side has the obligation to buy an asset for a certain price in one year's time

C) One side has the obligation to buy an asset for a certain price at some time during the next
year

D) One side has the obligation to buy an asset for the market price in one year's time

Answer: B

2) A one-year call option on a stock with a strike price of $30 costs $3; a one-year put option on
the stock with a strike price of $30 costs $4. Suppose that a trader buys two call options and
one put option. The breakeven stock price above which the trader makes a profit is

A) $35

B) $40

C) $30

D) $36

Answer: A

3) A one-year call option on a stock with a strike price of $30 costs $3; a one-year put option on
the stock with a strike price of $30 costs $4. Suppose that a trader buys two call options and
one put option. The breakeven stock price below which the trader makes a profit is

A) $25

B) $28

C) $26

D) $20

Answer: D

4) Which of the following is approximately true when size is measured in terms of the underlying
principal amounts or value of the underlying assets?

A) The exchange-traded market is twice as big as the over-the-counter market

B) The over-the-counter market is twice as big as the exchange-traded market

C) The exchange-traded market is ten times as big as the over-the-counter market

D) The over-the-counter market is ten times as big as the exchange-traded market

Answer: D

5) Which of the following best describes the term "spot price"?

A) The price for immediate delivery

B) The price for delivery at a future time

C) The price of an asset that has been damaged

D) The price of renting an asset

Answer: A

6) Which of the following is true about a long forward contract?

A) The contract becomes more valuable as the price of the asset declines

B) The contract becomes more valuable as the price of the asset rises

C) The contract is worth zero if the price of the asset declines after the contract has been
entered

into

D) The contract is worth zero if the price of the asset rises after the contract has been entered
into

Answer: B

7) An investor sells a futures contract an asset when the futures price is $1,500. Each contract
is

on 100 units of the asset. The contract is closed out when the futures price is $1,540. Which of

the following is true?

A) The investor has made a gain of $4,000

B) The investor has made a loss of $4,000

C) The investor has made a gain of $2,000

D) The investor has made a loss of $2,000

Answer: B

8) Which of the following describes European options?

A) Sold in Europe

B) Priced in Euros

C) Exercisable only at maturity

D) Calls (there are no puts)

Answer: C

9) Which of the following is NOT true?

A) A call option gives the holder the right to buy an asset by a certain date for a certain price

B) A put option gives the holder the right to sell an asset by a certain date for a certain price

C) The holder of a call or put option must exercise the right to sell or buy an asset

D) The holder of a forward contract is obligated to buy or sell an asset

Answer: C

10) Which of the following is NOT true about call and put options?

A) An American option can be exercised at any time during its life

B) A European option can only be exercised only on the maturity date

C) Investors must pay an upfront price (the option premium) for an option contract

D) The price of a call option increases as the strike price increases

Answer: D

11) The price of a stock on July 1 is $57. A trader buys 100 call options on the stock with a strike

price of $60 when the option price is $2. The options are exercised when the stock price is $65.

The trader's net profit is

A) $700

B) $500

C) $300

D) $600

Answer: C

12) The price of a stock on February 1 is $124. A trader sells 200 put options on the stock with a
strike price of $120 when the option price is $5. The options are exercised when the stock price

is $110. The trader's net profit or loss is

A) Gain of $1,000

B) Loss of $2,000

C) Loss of $2,800

D) Loss of $1,000

Answer: D

13) The price of a stock on February 1 is $84. A trader buys 200 put options on the stock with a

strike price of $90 when the option price is $10. The options are exercised when the stock price

is $85. The trader's net profit or loss is

A) Loss of $1,000

B) Loss of $2,000

C) Gain of $200

D) Gain of $1000

Answer: A

14) The price of a stock on February 1 is $48. A trader sells 200 put options on the stock with a

strike price of $40 when the option price is $2. The options are exercised when the stock price is

$39. The trader's net profit or loss is

A) Loss of $800

B) Loss of $200

C) Gain of $200

D) Loss of $900

Answer: C

15) A speculator can choose between buying 100 shares of a stock for $40 per share and
buying

1000 European call options on the stock with a strike price of $45 for $4 per option. For second

alternative to give a better outcome at the option maturity, the stock price must be above
A) $45

B) $46

C) $55

D) $50

Answer: D

16) A company knows it will have to pay a certain amount of a foreign currency to one of its

suppliers in the future. Which of the following is true?

A) A forward contract can be used to lock in the exchange rate

B) A forward contract will always give a better outcome than an option

C) An option will always give a better outcome than a forward contract

D) An option can be used to lock in the exchange rate

Answer: A

17) A short forward contract on an asset plus a long position in a European call option on the

asset with a strike price equal to the forward price is equivalent to

A) A short position in a call option

B) A short position in a put option

C) A long position in a put option

D) None of the above

Answer: C

18) A trader has a portfolio worth $5 million that mirrors the performance of a stock index. The

stock index is currently 1,250. Futures contract trade on the index with one contract being on
250

times the index. To remove market risk from the portfolio the trader should

A) Buy 16 contracts

B) Sell 16 contracts

C) Buy 20 contracts

D) Sell 20 contracts
Answer: B

19) Which of the following best describes a central clearing party?

A) It is a trader that works for an exchange

B) It stands between two parties in the over-the-counter market

C) It is a trader that works for a bank

D) It helps facilitate futures trades

Answer: B

20) Which of the following is true?

A) Both forward and futures contracts are traded on exchanges

B) Forward contracts are traded on exchanges, but futures contracts are not

C) Futures contracts are traded on exchanges, but forward contracts are not

D) Neither futures contracts nor forward contracts are traded on exchanges

Answer: C

21) Which of the following is NOT true?

A) Futures contracts nearly always last longer than forward contracts

B) Futures contracts are standardized; forward contracts are not

C) Delivery or final cash settlement usually takes place with forward contracts; the same is not

true of futures contracts

D) Forward contracts usually have one specified delivery date; futures contract often have a

range of delivery dates

Answer: A

22) In the corn futures contract a number of different types of corn can be delivered (with price

adjustments specified by the exchange) and there are a number of different delivery locations.

Which of the following is true?

A) This flexibility tends increase the futures price

B) This flexibility tends decrease the futures price

C) This flexibility may increase and may decrease the futures price

D) This flexibility has no effect on the futures price

Answer: B

23) A company enters into a short futures contract to sell 50,000 units of a commodity for 70

cents per unit. The initial margin is $4,000 and the maintenance margin is $3,000. What is the

futures price per unit above which there will be a margin call?

A) 78 cents

B) 76 cents

C) 74 cents

D) 72 cents

Answer: D

24) A company enters into a long futures contract to buy 1,000 units of a commodity for $60 per

unit. The initial margin is $6,000 and the maintenance margin is $4,000. What futures price will

allow $2,000 to be withdrawn from the margin account?

A) $58

B) $62

C) $64

D) $66

Answer: B

25) One futures contract is traded where both the long and short parties are closing out existing

positions. What is the resultant change in the open interest?

A) No change

B) Decrease by one

C) Decrease by two

D) Increase by one

Answer: B
26) Who initiates delivery in a corn futures contract?

A) The party with the long position

B) The party with the short position

C) Either party

D) The exchange

Answer: B

27) You sell one December futures contracts when the futures price is $1,010 per unit. Each

contract is on 100 units and the initial margin per contract that you provide is $2,000. The

maintenance margin per contract is $1,500. During the next day the futures price rises to $1,012

per unit. What is the balance of your margin account at the end of the day?

A) $1,800

B) $3,300

C) $2,200

D) $3,700

Answer: A

28) A hedger takes a long position in a futures contract on a commodity on November 1, 2012 to

hedge an exposure on March 1, 2013. The initial futures price is $60. On December 31, 2012
the

futures price is $61. On March 1, 2013 it is $64. The contract is closed out on March 1, 2013.

What gain is recognized in the accounting year January 1 to December 31, 2013? Each contract

is on 1000 units of the commodity.

A) $0

B) $1,000

C) $3,000

D) $4,000

Answer: D

29) A speculator takes a long position in a futures contract on a commodity on November 1,

2012 to hedge an exposure on March 1, 2013. The initial futures price is $60. On December 31,

2012 the futures price is $61. On March 1, 2013 it is $64. The contract is closed out on March 1,

2013. What gain is recognized in the accounting year January 1 to December 31, 2013? Each

contract is on 1000 units of the commodity.

A) $0

B) $1,000

C) $3,000

D) $4,000

Answer: C

30) A limit order

A) Is an order to trade up to a certain number of futures contracts at a certain price

B) Is an order that can be executed at a specified price or one more favorable to the investor

C) Is an order that must be executed within a specified period of time

D) None of the above

Answer: B

31) An interest rate is 6% per annum with annual compounding. What is the equivalent rate with

continuous compounding?

A) 5.79%

B) 6.21%

C) 5.83%

D) 6.18%

Answer: C

32) An interest rate is 5% per annum with continuous compounding. What is the equivalent rate

with semiannual compounding?

A) 5.06%

B) 5.03%
C) 4.97%

D) 4.94%

Answer: A

33) An interest rate is 12% per annum with semiannual compounding. What is the equivalent
rate

with quarterly compounding?

A) 11.83%

B) 11.66%

C) 11.77%

D) 11.92%

Answer: A

34) The two-year zero rate is 6% and the three year zero rate is 6.5%. What is the forward rate
for

the third year? All rates are continuously compounded.

A) 6.75%

B) 7.0%

C) 7.25%

D) 7.5%

Answer: D

35) The six-month zero rate is 8% per annum with semiannual compounding. The price of a
one-

year bond that provides a coupon of 6% per annum semiannually is 97. What is the one-year

continuously compounded zero rate?

A) 8.02%

B) 8.52%

C) 9.02%

D) 9.52%
Answer: C

36) The yield curve is flat at 6% per annum. What is the value of an FRA where the holder

receives interest at the rate of 8% per annum for a six-month period on a principal of $1,000

starting in two years? All rates are compounded semiannually.

A) $9.12

B) $9.02

C) $8.88

D) $8.63

Answer: D

37) An investor shorts 100 shares when the share price is $50 and closes out the position six

months later when the share price is $43. The shares pay a dividend of $3 per share during the

six months. How much does the investor gain?

A) $1,000

B) $400

C) $700

D) $300

Answer: B

38) The spot price of an investment asset that provides no income is $30 and the risk-free rate
for

all maturities (with continuous compounding) is 10%. What is the three-year forward price?

A) $40.50

B) $22.22

C) $33.00

D) $33.16

Answer: A

39) The spot price of an investment asset is $30 and the risk-free rate for all maturities is 10%

with continuous compounding. The asset provides an income of $2 at the end of the first year
and at the end of the second year. What is the three-year forward price?

A) $19.67

B) $35.84

C) $45.15

D) $40.50

Answer: B

40) An exchange rate is 0.7000 and the six-month domestic and foreign risk-free interest rates
are

5% and 7% (both expressed with continuous compounding). What is the six-month forward
rate?

A) 0.7070

B) 0.7177

C) 0.7249

D) 0.6930

Answer: D

41) A short forward contract that was negotiated some time ago will expire in three months and

has a delivery price of $40. The current forward price for three-month forward contract is $42.

The three month risk-free interest rate (with continuous compounding) is 8%. What is the value

of the short forward contract?

A) +$2.00

B) -$2.00

C) +$1.96

D) -$1.96

Answer: D

42) Which of the following describes a call option?

A) The right to buy an asset for a certain price

B) The obligation to buy an asset for a certain price

C) The right to sell an asset for a certain price

D) The obligation to sell an asset for a certain price

Answer: A

43) Which of the following is true?

A) A long call is the same as a short put

B) A short call is the same as a long put

C) A call on a stock plus a stock the same as a put

D) None of the above

Answer: D

44) An investor has exchange-traded put options to sell 100 shares for $20. There is a 2 for 1
stock

split. Which of the following is the position of the investor after the stock split?

A) Put options to sell 100 shares for $20

B) Put options to sell 100 shares for $10

C) Put options to sell 200 shares for $10

D) Put options to sell 200 shares for $20

Answer: C

45) An investor has exchange-traded put options to sell 100 shares for $20. There is 25% stock

dividend. Which of the following is the position of the investor after the stock dividend?

A) Put options to sell 100 shares for $20

B) Put options to sell 75 shares for $25

C) Put options to sell 125 shares for $15

D) Put options to sell 125 shares for $16

Answer: D

46) An investor has exchange-traded put options to sell 100 shares for $20. There is a $1 cash

dividend. Which of the following is then the position of the investor?

A) The investor has put options to sell 100 shares for $20
B) The investor has put options to sell 100 shares for $19

C) The investor has put options to sell 105 shares for $19

D) The investor has put options to sell 105 shares for $19.05

Answer: A

47) Which of the following describes a short position in an option?

A) A position in an option lasting less than one month

B) A position in an option lasting less than three months

C) A position in an option lasting less than six months

D) A position where an option has been sold

Answer: D

48) Which of the following is an example of an option class?

A) All calls on a certain stock

B) All calls with a particular strike price on a certain stock

C) All calls with a particular time to maturity on a certain stock

D) All calls with a particular time to maturity and strike price on a certain stock

Answer: A

49) Which of the following is an example of an option series?

A) All calls on a certain stock

B) All calls with a particular strike price on a certain stock

C) All calls with a particular time to maturity on a certain stock

D) All calls with a particular time to maturity and strike price on a certain stock

Answer: D

50) Which of the following must post margin?

A) The seller of an option

B) The buyer of an option

C) The seller and the buyer of an option

D) Neither the seller nor the buyer of an option

Answer: A

51) Which of the following describes a long position in an option?

A) A position where there is more than one year to maturity

B) A position where there is more than five years to maturity

C) A position where an option has been purchased

D) A position that has been held for a long time

Answer: C

52) When a six-month option is purchased

A) The price must be paid in full

B) Up to 25% of the option price can be borrowed using a margin account

C) Up to 50% of the option price can be borrowed using a margin account

D) Up to 75% of the option price can be borrowed using a margin account

Answer: A

53) The price of a stock is $67. A trader sells 5 put option contracts on the stock with a strike

price of $70 when the option price is $4. The options are exercised when the stock price is $69.

What is the trader's net profit or loss?

A) Loss of $1,500

B) Loss of $500

C) Gain of $1,500

D) Loss of $1,000

Answer: C

54) A trader buys a call and sells a put with the same strike price and maturity date. What is the

position equivalent to?

A) A long forward

B) A short forward
C) Buying the asset

D) None of the above

Answer: A

55) The price of a stock is $64. A trader buys 1 put option contract on the stock with a strike

price of $60 when the option price is $10. When does the trader make a profit?

A) When the stock price is below $60

B) When the stock price is below $64

C) When the stock price is below $54

D) When the stock price is below $50

Answer: D

56) Consider a put option and a call option with the same strike price and time to maturity.

Which of the following is true?

A) It is possible for both options to be in the money

B) It is possible for both options to be out of the money

C) One of the options must be in the money

D) One of the options must be either in the money or at the money

Answer: D

57) When the stock price increases with all else remaining the same, which of the following is

true?

A) Both calls and puts increase in value

B) Both calls and puts decrease in value

C) Calls increase in value while puts decrease in value

D) Puts increase in value while calls decrease in value

Answer: C

58) When the strike price increases with all else remaining the same, which of the following is

true?
A) Both calls and puts increase in value

B) Both calls and puts decrease in value

C) Calls increase in value while puts decrease in value

D) Puts increase in value while calls decrease in value

Answer: D

59) When volatility increases with all else remaining the same, which of the following is true?

A) Both calls and puts increase in value

B) Both calls and puts decrease in value

C) Calls increase in value while puts decrease in value

D) Puts increase in value while calls decrease in value

Answer: A

60) When dividends increases with all else remaining the same, which of the following is true?

A) Both calls and puts increase in value

B) Both calls and puts decrease in value

C) Calls increase in value while puts decrease in value

D) Puts increase in value while calls decrease in value

Answer: D

61) When interest rates increase with all else remaining the same, which of the following is

true?

A) Both calls and puts increase in value

B) Both calls and puts decrease in value

C) Calls increase in value while puts decrease in value

D) Puts increase in value while calls decrease in value

Answer: C

62) When the time to maturity increases with all else remaining the same, which of the

following is true?
A) European options always increase in value

B) The value of European options either stays the same or increases

C) There is no effect on European option values

D) European options are liable to increase or decrease in value

Answer: D

63) The price of a stock, which pays no dividends, is $30 and the strike price of a one year

European call option on the stock is $25. The risk-free rate is 4% (continuously

compounded). Which of the following is a lower bound for the option such that there are

arbitrage opportunities if the price is below the lower bound and no arbitrage opportunities if it is

above the lower bound?

A) $5.00

B) $5.98

C) $4.98

D) $3.98

Answer: B

64) A stock price (which pays no dividends) is $50 and the strike price of a two year European

put option is $54. The risk-free rate is 3% (continuously compounded). Which of the following

is a lower bound for the option such that there are arbitrage opportunities if the price is below
the

lower bound and no arbitrage opportunities if it is above the lower bound?

A) $4.00

B) $3.86

C) $2.86

D) $0.86

Answer: D

65) Which of the following best describes the intrinsic value of an option?

A) The value it would have if the owner were forced to exercise immediately
B) The Black-Scholes-Merton price of the option

C) The lower bound for the option's price

D) The amount paid for the option

Answer: A

66) Which of the following describes a situation where an American put option on a stock

becomes more likely to be exercised early?

A) Expected dividends increase

B) Interest rates decrease

C) The stock price volatility decreases

D) All of the above

Answer: C

67) Which of the following is true?

A) An American call option on a stock should never be exercised early

B) An American call option on a stock should never be exercised early when no dividends are

expected

C) There is always some chance that an American call option on a stock will be exercised early

D) There is always some chance that an American call option on a stock will be exercised early

when no dividends are expected

Answer: B

68) Which of the following is the put-call parity result for a non-dividend-paying stock?

A) The European put price plus the European call price must equal the stock price plus the

present value of the strike price

B) The European put price plus the present value of the strike price must equal the European
call

price plus the stock price

C) The European put price plus the stock price must equal the European call price plus the
strike
price

D) The European put price plus the stock price must equal the European call price plus the

present value of the strike price

Answer: D

69) Which of the following is true when dividends are expected?

A) Put-call parity does not hold

B) The basic put-call parity formula can be adjusted by subtracting the present value of

expected dividends from the stock price

C) The basic put-call parity formula can be adjusted by adding the present value of expected

dividends to the stock price

D) The basic put-call parity formula can be adjusted by subtracting the dividend yield from the

interest rate

Answer: B

70) The price of a European call option on a non-dividend-paying stock with a strike price of $50

is $6. The stock price is $51, the continuously compounded risk-free rate (all maturities) is 6%

and the time to maturity is one year. What is the price of a one-year European put option on the

stock with a strike price of $50?

A) $9.91

B) $7.00

C) $6.00

D) $2.09

Answer: D

71) The price of a European call option on a stock with a strike price of $50 is $6. The stock

price is $51, the continuously compounded risk-free rate (all maturities) is 6% and the time to

maturity is one year. A dividend of $1 is expected in six months. What is the price of a one-year

European put option on the stock with a strike price of $50?

A) $8.97

B) $6.97

C) $3.06

D) $1.12

Answer: C

72) A European call and a European put on a stock have the same strike price and time to

maturity. At 10:00am on a certain day, the price of the call is $3 and the price of the put is $4. At

10:01am news reaches the market that has no effect on the stock price or interest rates, but

increases volatilities. As a result the price of the call changes to $4.50. Which of the following

is correct?

A) The put price increases to $6.00

B) The put price decreases to $2.00

C) The put price increases to $5.50

D) It is possible that there is no effect on the price

Answer: C

73) Interest rates are zero. A European call with a strike price of $50 and a maturity of one year

is worth $6. A European put with a strike price of $50 and a maturity of one year is worth $7.

The current stock price is $49. Which of the following is true?

A) The call price is high relative to the put price

B) The put price is high relative to the call price

C) Both the call and put must be mispriced

D) None of the above

Answer: D

74) Which of the following is true for American options?

A) Put-call parity provides an upper and lower bound for the difference between call and

put prices
B) Put call parity provides an upper bound but no lower bound for the difference between call

and put prices

C) Put call parity provides an lower bound but no upper bound for the difference between call

and put prices

D) There are no put-call parity results

Answer: A

75) Which of the following can be used to create a long position in a European put option on a

stock?

A) Buy a call option on the stock and buy the stock

B) Buy a call on the stock and short the stock

C) Sell a call option on the stock and buy the stock

D) Sell a call option on the stock and sell the stock

Answer: B

76) 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 zero. An investor sells call

options with a strike price of $32. Which of the following hedges the position?

A) Buy 0.6 shares for each call option sold

B) Buy 0.4 shares for each call option sold

C) Short 0.6 shares for each call option sold

D) Short 0.4 shares for each call option sold

Answer: B

77) 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 zero. What is the risk-neutral

probability of that the stock price will be $36?

A) 0.6

B) 0.5
C) 0.4

D) 0.3

Answer: C

78) 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 zero. An investor sells call

options with a strike price of $32. What is the value of each call option?

A) $1.6

B) $2.0

C) $2.4

D) $3.0

Answer: A

79) The current price of a non-dividend-paying stock is $40. Over the next year it is expected to

rise to $42 or fall to $37. An investor buys put options with a strike price of $41. Which of the

following is necessary to hedge the position?

A) Buy 0.2 shares for each option purchased

B) Sell 0.2 shares for each option purchased

C) Buy 0.8 shares for each option purchased

D) Sell 0.8 shares for each option purchased

Answer: C

80) The current price of a non-dividend-paying stock is $40. Over the next year it is expected to

rise to $42 or fall to $37. An investor buys put options with a strike price of $41. What is the

value of each option? The risk-free interest rate is 2% per annum with continuous compounding.

A) $3.93

B) $2.93

C) $1.93

D) $0.93
Answer: D

81) Which of the following describes how American options can be valued using a binomial

tree?

A) Check whether early exercise is optimal at all nodes where the option is in-the-money

B) Check whether early exercise is optimal at the final nodes

C) Check whether early exercise is optimal at the penultimate nodes and the final nodes

D) None of the above

Answer: A

82) In a binomial tree created to value an option on a stock, the expected return on stock is

A) Zero

B) The return required by the market

C) The risk-free rate

D) It is impossible to know without more information

Answer: C

83) In a binomial tree created to value an option on a stock, what is the expected return on the

option?

A) Zero

B) The return required by the market

C) The risk-free rate

D) It is impossible to know without more information

Answer: C

84) A stock is expected to return 10% when the risk-free rate is 4%. What is the correct discount

rate to use for the expected payoff on an option in the real world?

A) 4%

B) 10%

C) More than 10%

D) It could be more or less than 10%

Answer: D

85) Which of the following is true for a call option on a stock worth $50?

A) As a stock's expected return increases the price of the option increases

B) As a stock's expected return increases the price of the option decreases

C) As a stock's expected return increases the price of the option might increase or decrease

D) As a stock's expected return increases the price of the option on the stock stays the same

Answer: D

86) The current price of a non-dividend paying stock is $30. Use a two-sthe stock with a strike

price of $32 that expires in 6 months. Each step is 3 months, the risk free rate is 8% per annum

with continuous compounding. What is the option price when u = 1.1 and d = 0.9?

A) $1.29

B) $1.49

C) $1.69

D) $1.89

Answer: B

87) The current price of a non-dividend paying stock is $30. Use a two-step tree to value a

European put option on the stock with a strike price of $32 that expires in 6 months. Each step
is

3 months, the risk free rate is 8%, and u = 1.1 and d = 0.9.

A) $2.24

B) $2.44

C) $2.64

D) $2.84

Answer: A

88) Which of the following is NOT true in a risk-neutral world?

A) The expected return on a call option is independent of its strike price

B) Investors expect higher returns to compensate for higher risk

C) The expected return on a stock is the risk-free rate

D) The discount rate used for the expected payoff on an option is the risk-free rate

Answer: B

89) If the volatility of a stock is 20% per annum and a risk-free rate is 5% per annum, which of

the following is closest to the Cox, Ross, Rubinstein parameter u for a tree with a three-month

time step?

A) 1.05

B) 1.07

C) 1.09

D) 1.11

Answer: D

90) If the volatility of a stock is 20% per annum and a risk-free rate is 5% per annum, which of

the following is closest to the Cox, Ross, Rubinstein parameter p for a tree with a three-month

time step?

A) 0.50

B) 0.54

C) 0.58

D) 0.62

Answer: B

91) The current price of a non-dividend paying stock is $50. Use a two-step tree to value an

American put option on the stock with a strike price of $48 that expires in 12 months. Each step

is 6 months, the risk free rate is 5% per annum, and the volatility is 20%. Which of the following

is the option price?

A) $1.95

B) $2.00
C) $2.05

D) $2.10

Answer: B

92) Which of the following describes delta?

A) The ratio of the option price to the stock price

B) The ratio of the stock price to the option price

C) The ratio of a change in the option price to the corresponding change in the stock price

D) The ratio of a change in the stock price to the corresponding change in the option price

Answer: C

93) When moving from valuing an option on a non-dividend paying stock to an option on a

currency which of the following is true?

A) The risk-free rate is replaced by the excess of the domestic risk-free rate over the foreign
risk-

free rate in all calculations

B) The formula for u changes

C) The risk-free rate be replaced by the excess of the domestic risk-free rate over the foreign

risk-free rate for discounting

D) The risk-free rate be replaced by the excess of the domestic risk-free rate over the

foreign risk-free rate when p is calculated

Answer: D

94) A tree is constructed to value an option on an index which is currently worth 100 and has a

volatility of 25%. The index provides a dividend yield of 2%. Another tree is constructed to

value an option on a non-dividend-paying stock which is currently worth 100 and has a volatility

of 25%.

A) The parameters p and u are the same for both trees

B) The parameter p is the same for both trees but u is not

C) The parameter u is the same for both trees but p is not

D) None of the above

Answer: C

95) Which of the following is assumed by the Black-Scholes-Merton model?

A) The return from the stock in a short period of time is lognormal

B) The stock price at a future time is lognormal

C) The stock price at a future time is normal

D) None of the above

Answer: B

96) Which of the following is a definition of volatility?

A) The standard deviation of the return, measured with continuous compounding, in one

year

B) The variance of the return, measured with continuous compounding, in one year

C) The standard deviation of the stock price in one year

D) The variance of the stock price in one year

Answer: A

97) A stock price is $100. Volatility is estimated to be 20% per year. What is an estimate of the

standard deviation of the change in the stock price in one week?

A) $0.38

B) $2.77

C) $3.02

D) $0.76

Answer: B

98) A stock provides an expected return of 10% per year and has a volatility of 20% per year.

What is the continuously compounded expected return in one year?

A) 6%

B) 8%
C) 10%

D) 12%

Answer: B

99) An investor has earned 2%, 12% and -10% on equity investments in successive years

(annually compounded). This is equivalent to earning which of the following annually

compounded rates for the three year period.

A) 1.33%

B) 1.23%

C) 1.13%

D) 0.93%

Answer: D

100) Which of the following is a way of extending the Black-Scholes-Merton formula to value a

European call option on a stock paying a single dividend?

A) Reduce the maturity of the option so that it equals the time of the dividend

B) Subtract the dividend from the stock price

C) Add the dividend to the stock price

D) Subtract the present value of the dividend from the stock price

Answer: D

101) When the non-dividend paying stock price is $20, the strike price is $20, the risk-free rate
is

6%, the volatility is 20% and the time to maturity is 3 months, which of the following is the price

of a European call option on the stock?

A) 20N(0.1)-19.7N(0.2)

B) 20N(0.2)-19.7N(0.1)

C) 19.7N(0.2)-20N(0.1)

D) 19.7N(0.1)-20N(0.2)

Answer: B
102) When the non-dividend paying stock price is $20, the strike price is $20, the risk-free rate
is

5%, the volatility is 20% and the time to maturity is 3 months, which of the following is the price

of a European put option on the stock?

A) 19.7N(-0.1)-20N(-0.2)

B) 20N(-0.1)-20N(-0.2)

C) 19.7N(-0.2)-20N(-0.1)

D) 20N(-0.2)-20N(-0.1)

Answer: A

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Ở trên chỉ là 1 số câu vì nó rất nhiều, không thể làm hết nên học luyện qua thôi

Đề thi chủ yếu toàn hỏi binominal tree và black shcoles – merton model (tính được
price của call option và put option theo 2 PP này_ nên ôn 2 phần này kĩ là đã làm được
55% đề, các phần còn lại sẽ rơi vào options, futures trading khoảng 30% (chủ yếu tính
profit từ lệnh long, short, buy call, buy put, sell call, sell put) và các kiến thức còn lại
khoảng 15% (có hỏi 2 câu naked options). Chú ý thêm các câu sau nữa nhe cho các
phần còn lại:

You operate a cattle farm that supplies hamburger meat to the big fast food chains. You
buy a lot of grain to feed your cattle, and you sell the fully grown cattle on the livestock
market.

You're afraid of adverse movements in grain and livestock prices. What options should
you buy to hedge your exposures in the grain and cattle livestock markets?

Select the most correct response:

(a) Buy calls on grain, buy calls on cattle livestock.

(b) Buy calls on grain, buy puts on cattle livestock.

(c) Buy puts on grain, buy calls on cattle livestock.

(d) Buy puts on grain, buy puts on cattle livestock.

(e) Statements (a) and (d) are both correct.

ĐÁP ÁN: B

You believe that the price of a share will fall significantly very soon, but the rest of the
market does not. The market thinks that the share price will remain the same. Assuming
that your prediction will soon be true, which of the following trades is a bad idea? In
other words, which trade will NOT make money or prevent losses?

(a) Sell all existing stock that you own.

(b) Short sell the stock.

(c) Buy put options on the stock.

(d) Sell put options on the stock.

(e) Sell call options on the stock.

ĐÁP ÁN: D

Which option position has the possibility of unlimited potential losses?

(a) Long call options.

(b) Short call options.

(c) Long put options.

(d) Short put options.

(e) No option positions have the possibility of unlimited potential losse

ĐÁP ÁN: B

After doing extensive fundamental analysis of a company, you believe that their shares
are overpriced and will soon fall significantly. The market believes that there will be no
such fall.

Which of the following strategies is NOT a good idea, assuming that your prediction is
true?

(a) Sell any of the firm's shares that you already own.
(b) Short-sell the firm's shares.

(c) Sell futures written on the shares.

(d) Buy put options written on the shares.

(e) Buy call options written on the shares.

ĐÁP ÁN: E

A stock, a call, a put and a bond are available to trade. The call and put options'
underlying asset is the stock they and have the same strike prices, K.

Being long the call and short the stock is equivalent to being:

(a) Long the put only.

(b) Long the put and long the bond.

(c) Long the put and short the bond.

(d) Short the put and long the bond.

(e) Short the put and short the bond.

ĐÁP ÁN: C

A stock, a call, a put and a bond are available to trade. The call and put options'
underlying asset is the stock they and have the same strike prices, K.

You are currently long the stock. You want to hedge your long stock position without
actually trading the stock. How would you do this?

(a) Long call, long put and long bond.

(b) Long call, long put and short bond.

(c) Long call, short put and short bond.

(d) Short call, short put and short bond.

(e) Short call, long put and short bond.

ĐÁP ÁN: E