D Question 1 An interest rate is 6% per annum with quarterly compounding. What is the equivalent rate with continuous compounding? 5.96% O6.21% 06.09% 5.83% Question 2 3.75% The two-year zero rate is 3.5% and the three-year zero rate is 4.0%. What is the forward rate for the third year? All rates are continuously compounded. 4.0% 4.5% 1 pts 5.0% Question 3 1 pts 1 pts
Which of the following is NOT true about a forward rate agreement (FRA)? As time passes, the value of an FRA can become positive or negative depending on the zero rates at the time. By choosing the LBOR zero rate as the specified interest rate, the contracting parties of an FRA ensure that no money initially changes hands. When an FRA is first negotiated, the specified interest rate usually equals the forward rate, so that the contract has zero value. An FRA is an over-the-counter contract designed to fix the interest rate that will apply to a certain principal amount during a specified future time period. Question 6 1 pts A forward rate agreement (FRA) will pay a company 3% interest (with semi-annual compounding) on a principal of $100 million for six months starting in 12 months. If the forward rate for the sixmonth period is now 4% (with semi-annual compounding), what is the value to the company of this FRA? Assume that the 18 -month zero rate is 3% per annum (with continuous compounding). Round the answer to the nearest thousand. +$457,000 $527,000 $478,000 $447,000 The current price of silver is $20 per ounce. The storage cost is 2% and the interest rate is 3%, both per annum and expressed with continuous compounding. What is the futures price of silver for delivery in nine months? $19.26 $20.32 $19.85 $20.76 Question 14 1pts The risk-free interest rate is 4% per annum and the dividend yield on a stock index is 2% per annum, both expressed with continuous compounding. Currently, the stock index stands at 10,000 , and the index futures price for a contract deliverable in six months is 10,600 . What is your answer concerning opportunities for index arbitrage? There are no opportunities for index arbitrage because the index futures price is correctly aligned with the spot price. There are opportunities for index arbitrage because the index futures price is too high. Arbitrageurs would short the index futures and long the index portfolio. There are opportunities for index arbitrage because the index futures price is too low. Arbitrageurs would long the index futures and short the index portfolio. It is technically not possible to carry out index arbitrage even when the futures price is not correctly aligned with the spot price. An interest rate is 6% per annum with quarterly compounding. What is the equivalent rate with continuous compounding? 5.96% 6.21% 6.09% 5.83% Question 2 1 pts The two-year zero rate is 3.5% and the three-year zero rate is 4.0%. What is the forward rate for the third year? All rates are continuously compounded. 3.75% 4.0% 4.5% 5.0% Which of the following describes an American put option contract on Apple stock with a strike price of $110 and a maturity of one month? The right to sell 100 shares of Apple stock for $110 each only at the end of the month The right to buy 100 shares of Apple stock for $110 each at any time during the month The obligation to sell 100 shares of Apple stock for $110 each at any time during the month The right to sell 100 shares of Apple stock for $110 each at any time during the month Question 16 1 pts A call option's payoff at maturity time T is CT=max(STK,0), where ST is the stock price at time T and K is the strike price. Which of the following is NOT true about this payoff? The payoff is positive when the stock price at time T is greater than the strike price. The payoff can never be negative but the premium paid to acquire the option can be lost. The payoff is zero when the stock price at time T is less than or equal to the strike price. The payoff is negative when the stock price at time T is less than the strike price. Which of the following describes contango? The futures price is below today's spot price. The futures price is above the expected future spot price. The futures price is a declining function of the time to maturity. The futures price is below the expected future spot price. Question 12 1 pts Six months ago, a one-year long forward contract on gold was entered into when the forward price of gold was $2,000 per troy ounce. Today, the spot price of gold is $2,050 and the risk-free interest rate is 2% per annum with continuous compounding. What is the value today of this forward contract? (lgnore any storage costs of gold.) $49.90 $69.90 $39.90 $59.90 An investor shorts 100 shares of a stock when the share price is $50 and closes out the position six months later when the share price is $43. The stock pays a dividend of $3 per share during the six months. How much does the investor gain? $300 $600 $900 $400 Question 8 1 pts The current exchange rate is US\$0.7000 per Australian dollar. The six-month risk-free interest rates are 1% in the U.S. and 4% in Australia (both expressed with continuous compounding). What is the six-month forward rate? US\$0.6724/AUS US\$0.7071/AUS US\$0.7207/AUS US\$0.6896/AUS A trader buys 200 put options on a stock with a strike price of $100 when the option price is $3 and the stock price is $102. The trader holds the options to the maturity date when the stock price is $107. What is the trader's net profit or loss? Loss of $2,000 Profit of $400 Loss of $600 Profit of $200 Question 20 1 pts Consider a call option and a put option on a stock with the same strike price of $50. If the stock price currently is $55, which of the following is true? Both the call and the put are in the money. Both the call and the put are at the money. The put is in the money and the call is out of the money. The call is in the money and the put is out of the money. Interest rates are strongly negatively correlated with the price of an asset. Which of the following would you expect to be true between the forward and the futures price of the asset that is deliverable at the same time in the future? The forward price is slightly lower than the futures price. The forward price is uncorrelated with the futures price. The forward price is always equal to the futures price. The forward price is slightly higher than the futures price. Question 10 1 pts As the convenience yield increases, which of the following is true? The ratio of the futures price to the spot price decreases. The ratio of the futures price to the spot price may increase, decrease, or stay the same. The ratio of the futures price to the spot price stays the same. The ratio of the futures price to the spot price increases. An investor has exchange-traded put options to sell 100 shares for $440 per share. There is a 4 for 1 stock split. Which of the following is the position of the investor after the stock split? Put options to sell 100 shares for $440 each Put options to sell 400 shares for $440 each Put options to sell 100 shares for $110 each Put options to sell 400 shares for $110 each Question 18 1 pts A trader buys 500 call options on a stock with a strike price of $60 when the option price is $6 and the stock price is $62. The trader exercises these call options to buy 500 shares when the stock price is $70. What is the trader's net profit or loss? Profit of $1,500 Profit of $2.000 Loss of $600 Profit of $1,000 The six-month zero rate is 7% per annum with continuous compounding. The price of a one-year bond that provides a coupon of 6% per annum semi-annually is 98.5 . What is the one-year continuously compounded zero rate? 7.12% 7.77% 7.45% 7.93% Question 4 1pts The 6-month, 12-month, 18-month, and 24 -month zero rates are 2%,2.5%,3%, and 3.5% per annum, respectively, all with continuous compounding. What is the cash price of a bond with a face value of 100 that will mature in 24 months and will pay a coupon of 4% per annum semi-annually? 98.87 105.32 103.14 100.95
