 +1 4853618276 support@regentessays.com 1. Eurodollar deposits are,(a) Deposits that may be made in euros or dollars.,(b) Euro denominated deposits that are redeemable in dollars.,(c) Dollar denominated deposits made in banks in Europe.,(d) Euro denominated deposits made in the US.,2. Eurodollar deposits follow the money-market day-count convention. Suppose a deposit is made for 92 days at a Libor rate of 4% on a notional amount of \$100. The interest amount is,(a) 1.0082,(b) 1.0099,(c) 1.0101,(d) 1.0222,3. Consider a 6×12 FRA where the underlying six-month period is 183 days and the notional is \$100. The FRA fixed rate is 5%. At maturity of the contract the underlying Libor for six months is 7%. What is the settlement amount on the FRA? Assume the Actual/360 convention.,(a) 0.9683,(b) 0.9687,(c) 0.9817,(d) 1.0167,4. The payoff of the FRA has the following property,(a) It is convex in the Libor rate.,(b) It is linear in the Libor rate.,(c) It is concave in the Libor rate.,(d) None of the above.,5. You are given the following data concerning a 6×12 FRA. The first six-month period is 182 days and the second is 183 days. The Libor rate for six months is 5% and for one year is 6%. The arbitrage-free price of the 6×12 FRA, assuming the Actual/360 day-count convention, is,(a) 5.50%,(b) 6.22%,(c) 6.55%,(d) 6.82%,6. A \$100 notional 6×12 FRA has the following features at inception. The first six month period is 182 days and the second is 183 days. The locked-in rate on the FRA is 6%. After one month the 5×11 FRA is trading at a fair strike of 6.2% with 151 days in the first five month period. What is the value of the FRA to the buyer if the five-month Libor rate at this point is is 5%?,(a) +0.0965,(b) 0.0965,(c) ,(d) –0.0986,,,7. ABC Inc. has to borrow money to undertake a seasonal business expansion in six months time. They will need additional working capital funding for six months and wish to hedge themselves against a rise in interest rates in six month’s time. They should,(a) Take a short position in a 6×12 FRA.,(b) Take a long position in a 6×12 FRA.,(c) Lend the notional amount for one year and borrow the same amount for six months, both at the spot rates prevailing today.,(d) Lend the notional for one year, wait six months, and borrow the same amount for six months at the spot rate prevailing then.,8. You are long 5 eurodollar futures contracts. If the Libor rate underlying the contract increases by 5 basis points, your position gains the following value:,(a) \$25,(b) +\$25,(c) \$125,(d) +\$125,9. The September eurodollar contract is trading at 95. You have a 90-day borrowing commencing in September for \$500,000,000 that you wish to hedge using futures. How many eurodollar futures contracts should you buy (rounded off to the nearest integer)?,(a) 490,(b) 492,(c) 494,(d) 500,10. The convexity bias between FRAs and eurodollar futures implies that,(a) The futures results in greater cash outflows or smaller cash inflows than the FRA.,(b) The futures settlement amount is convex in Libor rates.,(c) The futures results in greater cash inflows or lower cash outflows than the FRA.,(d) The FRA payoff minus the futures payoff is convex in Libor rates.,11. In satisfaction of a US Treasury bond futures contract, the short position delivers a 15-year 9% bond instead of the standard bond. What is the conversion factor on this delivery? Assume the last coupon on the bond was just paid.,(a) 1.255,(b) 1.294,(c) 1.354,(d) 1.446,12. The quoted price on a 91-day Treasury bill is 5. What is the cash price of the bill?,(a) 95.00,(b) 98.50,(c) 98.74,(d) 98.75,,,,13. All else being equal, a bond with a higher coupon has a duration that is ________ than that of a bond with a lower coupon.,(a) greater than.,(b) less than.,(c) equal to.,(d) undetermined in relation to.,,14. Bonds A and B both have a duration of exactly one year. An equally-weighted portfolio of these bonds will have a duration of,(a) Greater than 1 year because duration is additive.,(b) Equal to one year because the average duration is still one year.,(c) Less than one year, because duration is a measure of risk, and combining two bonds into a portfolio diversifies away risk.,(d) Cannot say because the outcome depends on the interaction of specific cash flows of both bonds.,15. Your bond portfolio has a value of \$10,600,000 with a duration of 2.2 years. How many 90-day US Treasury bill futures contracts do you need to hedge this exposure if the futures contract is priced at \$995,000? Assume you are carrying out duration-based hedging.,(a) 1.21,(b) 5.86,(c) 10.65,(d) 93.75,16. You plan to borrow \$1,000,000 for six months (183 days) in six months’ time (182 days). The current Libor rate for six months is 6%. You want to hedge your interest-rate exposure by using 90-day eurodollar futures contracts that mature in six months. Using PVBP analysis, how 90-day eurodollar futures contracts are needed for this hedge?,(a) 1.79,(b) 1.85,(c) 1.92,(d) 2.00,17. Ceteris paribus, as interest rates rise, which of these statements is most likely to be true?,(a) The duration of bonds rises.,(b) The duration of bonds falls.,(c) Newly issued bonds have a higher duration than bonds issued some time ago.,(d) The volatility of bonds increases.,18. You borrow money at Libor with a floating-rate note for one year with two semi-annual payments. What position do you need to add to this note to fix the cost of borrowing for the entire year?,(a) Sell a FRA.,(b) Buy a FRA.,(c) Buy a one-year zero-coupon bond and short a 1.5-year zero-coupon bond.,(d) Buy a six-month zero-coupon bond and short a one-year zero-coupon bond.,19. A \$100,000,000 FRA has a fixed rate of 4%. The first three-month period is for 91 days and the second one for 92 days. The 91-day Libor rate is 3% and the 183-day Libor rate is 3.5%. The value of this contract to the buyer of the FRA is,(a) ,(b) ,(c) ,(d) ,20. When you are short a position in a FRA, you are effectively,(a) Long the three-month zero-coupon bond, and long the six-month zero-coupon bond.,(b) Long the three-month zero-coupon bond, and short the six-month zero-coupon bond.,(c) Short the three-month zero-coupon bond, and long the six-month zero-coupon bond.,(d) Short the three-month zero-coupon bond, and short the six-month zero-coupon bond.,,21. A long position in a FRA can be replicated using,(a) A six-month borrowing combined with a 9-month investment.,(b) A six-month investment combined with a 9-month borrowing.,(c) A six-month investment combined with a 3-month borrowing.,(d) A six-month borrowing combined with a 3-month investment.,22. You anticipate a three-month borrowing in 6 months’ time. To hedge the interest-rate exposure you can go either,(a) Long a FRA or long a eurodollar futures contract maturing in 6 months.,(b) Short a FRA or long a eurodollar futures contract maturing in 6 months.,(c) Long a FRA or short a eurodollar futures contract maturing in 6 months.,(d) Short a FRA or short a eurodollar futures contract maturing in 6 months.,23. A long position in a eurodollar futures contracts expiring in June may be used to hedge interest-rate exposure resulting from a planned,(a) 90-day borrowing ending in June.,(b) 90-day borrowing beginning in June.,(c) 90-day investment ending in June.,(d) 90-day investment beginning in June.,24. You are long an FRA and long a eurodollar futures contract expiring in 3 months. Assume the fixed rate in the FRA is the same as the rate locked-in via the eurodollar futures contract. If interest rates jump down by 100 basis points,,(a) There is no net cash flow consequence because you are perfectly hedged.,(b) You will lose more on the FRA than you will make on the eurodollar futures.,(c) You will make more on the FRA than you will lose on the eurodollar futures.,(d) You will lose less on the FRA than you will make on the eurodollar futures.,,,,,25. You are short an FRA and short a eurodollar futures contract expiring in 3 months. Assume the fixed rate in the FRA is the same as the rate locked in via the eurodollar futures contract. If interest rates jump up by 100 basis points,,(a) You will lose money on both the FRA and the eurodollar futures.,(b) You make money on the FRA but lose on the eurodollar futures.,(c) You make money on both the FRA and the eurodollar futures.,(d) You lose money on the FRA but make money on the eurodollar futures.,26. Suppose the duration of a bond portfolio is 2. This means,(a) The final cash flow from the portfolio will occur in two years.,(b) The weighted-average maturity of the portfolio’s cash flows is 2 years.,(c) The portfolio is fully equivalent to a 2-year zero-coupon bond.,(d) The portfolio is fully equivalent to a 2-year par-coupon bond.,27. The largest markets for derivatives based on notional outstandings are,(a) Equity derivatives.,(b) Interest-rate derivatives.,(c) Commodity derivatives.,(d) Currency derivatives.,28. Which of the following is a valid completion of the sentence—“An American option …”?,(a) Reflects the higher impatience of Americans relative to Europeans.,(b) Is traded in America and Europe, whereas European options are only traded in Europe.,(c) Is exercisable prior to maturity whereas European options are not.,(d) All of the above.,29. The writer of a put option on a stock,(a) Has the right but not the obligation to sell the stock.,(b) Has the right but not the obligation to buy the stock.,(c) Has the obligation but not the right to sell the stock.,(d) Has the obligation but not the right to buy the stock.,30. The premium of an option is,(a) The price of the option.,(b) The value of the right but not the obligation to undertake a purchase or sale of the underlying asset.,(c) Is always non-negative.,(d) All of the above.,31. The value of the following position for options at the same strike price is always zero:,(a) A long call and a long put.,(b) A short call and a short put.,(c) Both (a) and (b).,(d) Neither (a) nor (b).,,32. Which of the following statements is true of an option’s payoff?,(a) The gross payoff is always strictly greater than the net payoff.,(b) The gross payoff is always strictly less than the net payoff.,(c) The gross payoff can be greater or less than than the net payoff.,(d) The gross payoff is equal to the net payoff in virtually all cases.,33. If your directional view is that stock prices are going to fall, you should,(a) Sell stock now.,(b) Sell call options.,(c) Buy put options.,(d) All of the above are profitable strategies.,34. If you believe that stock prices are going to fall for sure, then given a fixed amount of capital, you should,(a) Sell stock now.,(b) Sell call options.,(c) Buy put options.,(d) All of the above.,35. If you expect stock volatility to fall but have no particular view of direction, then you should,(a) Sell stock now.,(b) Sell call options.,(c) Buy put options.,(d) All of the above.,36. If you expect stock volatility to rise but have no particular view of direction, then you should,(a) Sell stock now.,(b) Sell call options.,(c) Buy put options.,(d) All of the above.,37. A call option with a strike of K = 100 is purchased at a premium of \$4. The stock price at maturity is \$105. The net payoff of the option is,(a) \$1,(b) \$5,(c) \$96,(d) \$101,38. You have a portfolio with long positions in both puts and calls. The volatility in the market rises.,(a) Your portfolio gains in value.,(b) Your portfolio gains on the calls and loses on the puts.,(c) Your portfolio gains on the puts and loses on the calls.,(d) Your portfolio is now more risky and is therefore worth less than before.,39. You anticipate that volatility will increase sharply and the stock price will fall. Select the most profitable of the following portfolios to hold, given your views:,(a) Long stock and long calls.,(b) Short stock and long puts.,(c) Long calls and short puts.,(d) Short stock and short calls.,40. For a call and a put written on the same underlying but at at possibly different strike prices,,(a) Both call and put options may be in-the-money at the same time.,(b) If the call is in-the-money, then the put will be out-of-the-money.,(c) If one of the options is out-of-the-money, then the other one is guaranteed to be in-the-money.,(d) At least one option will be in-the-money.,41. You have a long position in a stock that you purchased for \$100, and a short position in a put option on the same stock at strike K = 100. At maturity the stock price is \$95, and you liquidate your stock and option positions. Your gross payoff (cash flow) is,(a) \$0,(b) \$5,(c) \$90,(d) \$95,42. You have a long position in a stock that you purchased for \$100, a short position in a call and a long position in a put, both at strike K = 100. At maturity the stock price is ST, and you liquidate your stock and option positions. Your gross payoff (cash flow) is,(a) 0,(b) ST.– 100,(c) 100,(d) 100 – ST,43. You sold a call option at strike 105 for a price of \$3 and sold a put option at strike 95 for a price of \$2, both options with the same maturity. In what range of stock prices at maturity will you make money or not lose (on your net payoff)?,(a) 90–110,(b) 93–102,(c) 95–105,(d) 97–108,,,,,,44. You have \$100 to invest. You can invest it in one of two alternatives. The first is to invest it in a stock that is trading for \$100. The second is to buy three-month 100-strike calls on the stock that are currently trading at \$4 each. You expect the stock price to appreciate with a maximum price after three months of \$110. What is the maximum return on investment you can generate using stock and options?,(a) 10%,(b) 50%,(c) 150%,(d) 250%,45. You have \$100 to invest in a stock (or options on the stock). The stock is trading for \$100. The three-month 100–strike calls on the stock are trading at \$4 each. The minimum stock price you expect to see after three months is \$60. What is the worst case return on investment you can possibly end up with using stock and/or options?,(a) –100%,(b) –40%,(c) 0%,(d) +6%,46. You hold the following portfolio: a long position in a European call option on gold with a strike of \$975 per oz, a short position in a European put option on gold with a strike of \$975 per oz, and a short forward position in gold with a delivery price of \$1,000 per oz. All three contracts expire in one month. The value of your position is,(a) Positive.,(b) Negative.,(c) Zero.,(d) Can be positive, negative, or zero.,47. A seller of a naked put option will want the value of the underlying asset to _______ and a buyer of a naked call option will want the value of the underlying asset to ______.,(a) decrease, decrease,(b) decrease, increase,(c) increase, decrease,(d) increase, increase,48. You sell an IBM call option for \$4. The strike price of the option is \$120, and the maturity is one year. At maturity, the price of the IBM stock is \$126. Your profit/loss over the entire transaction is:,(a) \$3 profit,(b) \$2 loss,(c) \$6 loss,(d) \$4 profit,,,49. Which of the following statements is TRUE?,(a) The maximum possible loss to the buyer of a call option is unlimited,(b) The maximum possible loss to the seller of a call option is unlimited,(c) The maximum possible loss to the buyer of a put option is unlimited,(d) The maximum possible loss to the seller of a put option is unlimited,50. If you expect the price of a stock to decrease and its volatility to increase, then the most appropriate strategy to use is a,(a) Long put,(b) Short put,(c) Long Call,(d) Short call,

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