12. Which of the following factors most likely explains why the spot price of a commodity in short supply can be greater than its forward price?
A. Opportunity cost
B. Lack of dividends
C. Convenience yield
13. When interest rates are constant, futures prices are most likely:
A. less than forward prices.
B. equal to forward prices.
C. greater than forward prices.
14. In contrast to a forward contract, a futures contract:
A. trades over-the-counter.
B. is initiated at a zero value.
C. is marked-to-market daily.
15. To the holder of a long position, it is more desirable to own a forward contract than a futures contract when interest rates and futures prices are:
A. negatively correlated.
B. uncorrelated.
C. positively correlated.
16. The value of a swap typically:
A. is non-zero at initiation.
B. is obtained through replication.
C. does not fluctuate over the life of the contract.
17. The price of a swap typically:
A. is zero at initiation.
B. fluctuates over the life of the contract.
C. is obtained through a process of replication.
18. The value of a swap is equal to the present value of the:
A. fixed payments from the swap.
B. net cash flow payments from the swap.
C. underlying at the end of the contract.
19. A European call option and a European put option are written on the same underlying, and both options have the same expiration date and exercise price. At expiration, it is possible that both options will have:
A. negative values.
B. the same value.
C. positive values.
20. At expiration, a European put option will be valuable if the exercise price is:
A. less than the underlying price.
B. equal to the underlying price.
C. greater than the underlying price.
21. The value of a European call option at expiration is the greater of zero or the:
A. value of the underlying.
B. value of the underlying minus the exercise price.
C. exercise price minus the value of the underlying.
22. For a European call option with two months until expiration, if the spot price is below the exercise price, the call option will most likely have:
A. zero time value.
B. positive time value.
C. positive exercise value.
23. When the price of the underlying is below the exercise price, a put option is:
A. in-the-money.
B. at-the-money.
C. out-of-the-money.
24. If the risk-free rate increases, the value of an in-the-money European put option will most likely:
A. decrease.
B. remain the same.
C. increase.
25. The value of a European call option is inversely related to the:
A. exercise price.
B. time to expiration.
C. volatility of the underlying.
26. The table below shows three European call options on the same underlying:
The option with the highest value is most likely:
A. Option 1.
B. Option 2.
C. Option 3.
27. The value of a European put option can be either directly or inversely related to the:
A. exercise price.
B. time to expiration.
C. volatility of the underlying.
28. Prior to expiration, the lowest value of a European put option is the greater of zero or the:
A. exercise price minus the value of the underlying.
B. present value of the exercise price minus the value of the underlying.
C. value of the underlying minus the present value of the exercise price.
29. A European put option on a dividend-paying stock is most likely to increase if there is an increase in:
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