FIN 6487 - Dupoyet

Using discrete-time compounding, if the stock price is $51, the 3-month futures price is $53, and the current 3-month risk-free rate is 2% per annum, we can say
a. there is no arbitrage possible
b. there is an arbitrage opportunity and the arbitrage profi

- c. there is an arbitrage opportunity and the arbitrage profit is $1.75

In the case of a consumption asset whose futures price is below the no-arbitrage price,
a. arbitrage strategies implemented by traders will bring the prices back in equilibrium
b. arbitrage strategies implemented by traders can bring the futures price abo

- c. the futures price can stay below the no-arbitrage price

The payoff from selling a put option is:
a. -Max(St-K,0)
b. Max(K-St,0)
c. Max(St-K,0)
d. -Max(K-St,0)

- d. -Max(K-St,0)

A put option gives you the right to sell 100 shares for $40 per share. A 4-for-1 stock split happens. The terms of the new option contract are that the option now gives you the right to:
a. sell 400 shares for $10 per share
d. buy 400 shares for $40 per s

- a. sell 400 shares for $10 per share

You bought a put option with a strike price of $50 for a premium of $6. At expiration, your maximum potential profit is:
a. $50
b. $6
c. $56
d. $44

- d. $44

A short futures contract position is an agreement to:
a. buy the underlying asset
b. buy the underlying put option on the asset
c. sell the underlying asset
d. enter a short-term transaction

- c. sell the underlying asset

The correlation between the spot and the futures price is 0.75 and the standard deviations of changes in the spot and in the futures prices are 0.08 and 0.05 respectively. The hedge ratio is:
a. 0.6
b. 1.2
c. 0.75
d. 0.05

- b. 1.2
Hedge Ratio:
h = 0.75 x (0.08/0.05)

S&P 500 futures trade at 2,855 and one contract is on $250 times the index. The size of your portfolio is $5,000,000 and the portfolio has a beta of 2. How many futures contracts are needed to hedge?
a. 12
b. 14
c. 7
d. 1,776

- b. 14

The difference between forward and futures contracts is that forward contracts
a. are traded on an exchange
b. are settled daily
c. are traded over the counter
d. are not traded on currencies and interest rates

- c. are traded over the counter

Which of the following creates a bull spread?
a. buy a low strike price call and sell a high strike price call
b. buy a high strike price call and sell a low strike price call
c. buy a low strike price call and sell a high strike price put
d. buy a low st

- a. buy a low strike price call and sell a high strike price call

Which of the following creates a bear spread?
a. buy a low strike price call and sell a high strike price call
b. buy a high strike price call and sell a low strike price call
c. buy a low strike price call and sell a high strike price put
d. buy a low st

- b. buy a high strike price call and sell a low strike price call

Which of the following creates a bull spread?
a. buy a low strike price put and sell a high strike price put
b. buy a high strike price put and sell a low strike price put
c. buy a high strike price call and sell a low strike price put
d. buy a high strik

- a. buy a low strike price put and sell a high strike price put

Which of the following creates a bear spread?
a. buy a low strike price put and sell a high strike price put
b. buy a high strike price put and sell a low strike price put
c. buy a high strike price call and sell a low strike price put
d. buy a high strik

- b. buy a high strike price put and sell a low strike price put

What is the number of different option series used in creating a butterfly spread?
a. 1
b. 2
c. 3
d. 4

- c. 3

A stock price is currently $23. A reverse (i.e., short) butterfly spread is created from options with strike prices of $20, $25, and $30. Which of the following is true?
a. The gain when the stock price is greater that $30 is less than the gain when the s

- c. The gain when the stock price is greater that $30 is the same as the gain when the stock price
is less than $20

Which of the following is correct?
a. A calendar spread can be created by buying a call and selling a put when the strike prices are the same and the times to maturity are different
b. A calendar spread can be created by buying a put and selling a call wh

- d. A calendar spread can be created by buying a call and selling a call when the strike prices are
the same and the times to maturity are different

What is a description of the trading strategy where an investor sells a 3-month call option and buys a one-year call option, where both options have a strike price of $100 and the underlying
stock price is $75?
a. Neutral Calendar Spread
b. Bullish Calend

- b. Bullish Calendar Spread

Which of the following is correct?
a. A diagonal spread can be created by buying a call and selling a put when the strike prices are the same and the times to maturity are different
b. A diagonal spread can be created by buying a put and selling a call wh

- c. A diagonal spread can be created by buying a call and selling a call when the strike prices are different and the times to maturity are different

Which of the following is true of a box spread?
a. It is a package consisting of a bull spread and a bear spread
b. It involves two call options and two put options
c. It has a known value at maturity
d. All of the above

- d. All of the above

How can a straddle be created?
a. buy one call and one put with the same strike price and same expiration date
b. buy one call and one put with different strike prices and same expiration date
c. buy one call and two puts with the same strike price and ex

- a. buy one call and one put with the same strike price and same expiration date

How can a strip trading strategy be created?
a. buy one call and one put with the same strike price and same expiration date
b. buy one call and one put with different strike prices and same expiration date
c. buy one call and two puts with the same strik

- c. buy one call and two puts with the same strike price and expiration date

How can a strap trading strategy be created?
a. buy one call and one put with the same strike price and same expiration date
b. buy one call and one put with different strike prices and same expiration date
c. buy one call and two puts with the same strik

- d. buy two calls and one put with the same strike price and expiration date

How can a strangle trading strategy be created?
a. buy one call and one put with the same strike price and same expiration date
b. buy one call and one put with different strike prices and same expiration date
c. buy one call and two puts with the same st

- b. buy one call and one put with different strike prices and same expiration date

Which of the following describes a protective put?
a. a long put option on a stock plus a long position in the stock
b. a long put option on a stock plus a short position in the stock
c. a short put option on a stock plus a short call option on the stock

- a. a long put option on a stock plus a long position in the stock

Which of the following describes a covered call?
a. a long call option on a stock plus a long position in the stock
b. a long call option on a stock plus a short put option on the stock
c. a short call option on a stock plus a short position in the stock

- d. a short call option on a stock plus a long position in the stock

When the interest rate is 5% per annum with continuous compounding, which of the
following creates a $1000 principal protected note?
a. a one-year zero-coupon bond plus a one-year call option worth about $59
b. a one-year zero-coupon bond plus a one-year

- b. a one-year zero-coupon bond plus a one-year call option worth about $49

A trader creates a long butterfly spread from options with strike prices $60, $65, and $70 by
trading a total of 400 options. The options are worth $11, $14, and $18. What is the maximum net gain (after the cost of the options is taken into account)?
a. $

- d. $400

A trader creates a long butterfly spread from options with strike prices $60, $65, and $70 by
trading a total of 400 options. The options are worth $11, $14, and $18. What is the maximum net loss (after the cost of the options is taken into account)?
a. $

- a. $100

Six-month call options with strike prices of $35 and $40 cost $6 and $4, respectively. What is the maximum gain when a bull spread is created by trading a total of 200 options?
a. $100
b. $200
c. $300
d. $400

- c. $300

A corporate bond with an annual coupon rate of 4% per year pays interest on March 1st 2019 and on September 1st 2019. The interest accrued/earned between March 1st 2019 and June 11th 2019 is:
a. $4.00
b. $2.00
c. $2.22
d. $1.11

- d. $1.11

For bonds in the US, the dirty price is:
a. the cash price - accrued interest
b. the quoted price
c. the quoted price + accrued interest
d. the cash price - the quoted price

- c. the quoted price + accrued interest

A 3-month Eurodollar futures contract is a futures contract on the interest that will be paid (by someone who borrows at the Eurodollar interest or deposit rate) on $1 million for a future period of 3 months. Therefore, a one basis point change in the Eur

- a. $25

The Sep 2019 Euro futures quote is 97.600, meaning that the investor can lock in a per annum rate of:
a. 7.600%
b. 9.760%
c. 0.976%
d. 2.400%

- d. 2.400%

A 3-month hedge is required for a $16 million portfolio. Duration of the portfolio in 3 months will be 3.8 years. The 3-month T-bond futures price is 93-02 so that contract price is $93,062.50. The duration of the cheapest-to-deliver bond in 3 months is 9

- c. 71

A long position in a stock combined with a short position in a call is equivalent to:
a. the reverse of a protective put strategy
b. a long call strategy
c. a protective put strategy
d. a written covered call strategy

- d. a written covered call strategy

A bull spread loses money when the underlying asset
a. goes down in value
b. goes up in value
c. stays the same
d. is volatile

- a goes down in value

A written (short) straddle involves
a. the selling of a call and a put
b. the selling of a call and the buying of a put
c. the buying of a call and a put
d. the buying of a call and the selling of a put

- a. the selling of a call and a put

A written (short) strangle involves
a. the selling of a call of low strike and the buying of a put of high strike
b. the selling of a put of low strike and the selling of a call of high strike
c. the buying of a put of low strike and the buying of a call

- b. the selling of a put of low strike and the selling of a call of high strike

A (long) calendar spread makes money when the underlying asset
a. goes down in value
b. goes up in value
c. stays the same
d. is volatile

c. stays the same