(1) Risk Neutrality and Arbitrage are important to derivative pricing. They allow the Black Scholes formula to use the Risk Free Rate instead of the stock or option's own expected rate of return. TRUE FALSE (2) Assume you are a speculative hedge fund. Using a CDS, what could you do if you feel that GE fears are overblown, that GE is safe and will prosper. BUY Protection SELL Protection (3) (American Option Early Exercise) If a stock pays 0 dividends, a PUT option is in the money, and there is a month to expiration should the option be exercised today? NO YES Maybe / Sometimes / Depends on other factors (4) A firms follows a ROLL futures strategy, in which it uses a multiyear policy to hedge 1 million barrels of oil it must buy, per year for 4 years. In that strategy, the firm would go Long a million barrels in oil futures, in the first year. After the year is over, it would then go Long the next million barrels, etc. } TRUE FALL