1. If a call's strike price is above the underlying market price, what is the option moneyness and does it make the premium of the call relatively expensive or cheap and why?
2. Does the above call option have an intrinsic value and why?
3. If a put's strike price is above the market price, what is the option moneyness and does it make the price of the put expensive or cheap and why?
4. Does the above put option have an intrinsic value and why?

2. (4 points)

1. Define contango and backwardation of a futures market.
2. What would cause a futures market to move from contango to backwardation? (In your answer use a futures market as an example to help support your answer)

3. (4 points)

If you are Short a futures positon and the market is in backwardation, is the roll yield positive or negative and why?

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4. (4 points)

What are the four components of Risk Management? Define each component and give an example of each component.

5. (6 points)

The price of crude oil is currently $71.67 per barrel. The forward price for delivery in one year is $86.43 per barrel. An arbitrageur can borrow money at 4.38% per annum. There are 100 barrels of oil in each forward contract.

Assume that the cost of storing crude oil is $0 and crude oil provides no income during this time period.

1. Is this forward curve in contango or backwardation and explain why?
2. Could this scenario be profitable? What should the arbitrageur do and why? (Show calculations)

6. (3 points)

1. What are the key differences between a defined contribution plan and defined benefit plan?
2. Who bears the risk for each plan?