Test On Derivatives For CFA Level 1

10 Questions | Total Attempts: 3243

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Test On Derivatives For CFA Level 1

There are 10 questions in this test from the Derivatives section of the CFA Level 1 syllabus. You will get 15 minutes to complete the test.


Questions and Answers
  • 1. 
    What are the minimum values of an American-style and a European-style 3-month call option with a strike price of $90 on a non-dividend-paying stock trading at $96 if the risk-free rate is 3%?
    • A. 

      American: $6.00, European: $6.00

    • B. 

      American: $6.00, European: $5.62

    • C. 

      American: $6.62, European: $6.62

  • 2. 
    If the owner of a call option with a strike price of $35 finds the stock to be trading for $42 at expiration, then the option:
    • A. 

      Expires worthless

    • B. 

      Will not be exercised

    • C. 

      Is worth $7 per share

  • 3. 
    An agreement by Microsoft to receive 6-month LIBOR & pay a fixed rate of 5% per annum every 6 months for 3 years on a notional principal of $10 million. What is the net cash flow in period 3 if 6-month LIBOR at start of period 3 is 5.5%?
    • A. 

      $275,000

    • B. 

      $250,000

    • C. 

      $25,000

  • 4. 
    What is the option buyer's total profit or loss per share if a call option is purchased for a $5 premium, has a $50 exercise price, and the stock is valued at $53 at expiration?
    • A. 

      ($5)

    • B. 

      ($2)

    • C. 

      $3

  • 5. 
    A 90-day T-Bill Future is quoted price at 98. Calculate the delivery price
    • A. 

      $98

    • B. 

      $980,000

    • C. 

      $995,000

  • 6. 
    Which combination of positions will tend to protect the owner from downside risk?
    • A. 

      Buy the stock and buy a call option

    • B. 

      Sell the stock and buy a call option

    • C. 

      Buy the stock and buy a put option

  • 7. 
    Which of the following statements is true?
    • A. 

      For both calls and puts an increase in the exercise price will cause an increase in the option price

    • B. 

      For both calls and puts an increase in the time to maturity will cause an increase in the option price

    • C. 

      For calls, but not for puts, an increase in the time to maturity will cause an increase in the option price

  • 8. 
    An FRA settles in 30 days • $1 million notional • Based on 90-day LIBOR • Forward rate of 5.5% • Actual 90-day LIBOR at settlement is 6.5% • Calculate the PV of the FRA
    • A. 

      $2,453

    • B. 

      $2,460

    • C. 

      $2,463

  • 9. 
    European put-call parity says the difference in price for call options less put options, both with exercise price E and time to maturity T, is equal to the stock price:
    • A. 

      Minus the future value of the exercise price

    • B. 

      Plus the future value of the exercise price

    • C. 

      Minus the present value of the exercise price

  • 10. 
    Find lower bound for European call X = $75, stock is trading at $73, RFR = 5%, 3 months expiry
    • A. 

      $3.5

    • B. 

      $3.8

    • C. 

      $3.9