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| 1 | |
A call option |
| | A) | Is a contract to buy a certain quantity of a specific underlying asset at a specific price at a specified date in the future. |
| | B) | Gives the holder the right, but not the obligation, to sell the underlying asset for a stated price over a stated time period. |
| | C) | Is an exchange traded contract to buy a certain quantity of a specific underlying asset at some specific price at a specified date in the future. |
| | D) | Gives the holder the right, but not the obligation, to buy the underlying asset for a stated price over a stated time period. |
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| 2 | |
Consider a trader who opens a short futures position. The contract size is £62,500, the maturity is six months, and the initial price is $1.50 = £1. The next day, the settlement price is $1.60 = £1. What is the amount of his gain or loss? |
| | A) | $6,250 gain |
| | B) | $6,250 loss |
| | C) | No loss or no gain since maturity has not arrived. |
| | D) | $2,604.17 gain |
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| 3 | |
Consider a trader who buys a European call option on British pounds. The contract size is £62,500, the maturity is six months, and the strike price is $1.50 = £1. At maturity, the settlement price is $1.60 = £1. What is the amount of his gain or loss? |
| | A) | $6,250 gain |
| | B) | $6,250 loss |
| | C) | No loss or no gain since maturity has not arrived. |
| | D) | $2,604.17 gain |
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| 4 | |
Use the binomial option pricing model to estimate the value of the following call option. Maturity is one year; the risk-free rate is 10% per annum. The stock is worth $50 today and in one year the stock will be worth $60 or $40. The exercise price of the option is $50. |
| | A) | $0 |
| | B) | $6.82 |
| | C) | $46.875 |
| | D) | $13.64 |
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| 5 | |
Calculate the hedge ratio for the following call option. Maturity is one year; the risk-free rate is 10% per annum. The stock is worth $50 today and in one year the stock will be worth $60 or $40. The exercise price of the option is $50. |
| | A) | 1/2 |
| | B) | 2 |
| | C) | 2.20 |
| | D) | 0.75 |
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| 6 | |
For two otherwise-identical put options, the more valuable put option will have |
| | A) | A lower strike price. |
| | B) | The higher strike price. |
| | C) | A larger St. |
| | D) | The larger r$. |
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| 7 | |
Use the European option pricing formula to find the value of a six-month call option on Japanese yen. The strike price is $1 = ¥100. The volatility is 25 percent per annum; r$ = 5.5% and r¥ = 6%. |
| | A) | 0.005395 |
| | B) | 0.005982 |
| | C) | $0.006137/¥ |
| | D) | None of the above |
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| 8 | |
Suppose you wish to speculate on a rise in the value of the euro. If you are correct and the value of the euro does indeed rise in the future: |
| | A) | You would profit with a SHORT position in a futures contract on the euro |
| | B) | You would profit with a LONG position in a futures contract on the euro. |
| | C) | None of the above. |
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| 9 | |
Consider a PUT option written on €100,000. The strike price is $0.80 = €1.00 and the option premium is $0.02. At what exchange rate will the buyer of this put option break even? |
| | A) | $0.82 = €1.00 |
| | B) | $0.80 = €1.00 |
| | C) | $0.78 = €1.00 |
| | D) | $1.00 = €0.78 |
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| 10 | |
Consider a PUT option written on €100,000. The strike price is $0.80 = €1.00 and the option premium is $0.02 per euro. What is the theoretical maximum gain on this position? |
| | A) | There is unlimited upside potential. |
| | B) | $80,000 |
| | C) | $78,000 |
| | D) | $2,000 |
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