10 Questions
| Total Attempts: 3243

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