Q1. The pricing of derivatives (such as futures, forward, and options) should be determined by: (A) No relationship with the underlying asset (B) Arbitrage opportunity with risk-free return (C) No arbitrage condition (D) None of the above Answer: _______________

Q2. Holding other factors constant, which of the following will increase when time-tomaturity (T) increases? (A) European call option price (B) American put option price (C) European put option price (D) All of the above Answer: _______________

Q3. Which of following should be used by options traders who predict a significant change in S&P index in either direction: (I) Long Straddle on S&P index; (II) Long Butterfly Spread on S&P index; (III) Long Condor Spread on S&P index (A) II only (B) I only (C) I, II, and III (D) I and III only Answer: _______________

Q4. Assume that the underlying asset is an investment asset with no storage cost and no dividend. The information of the stock price, maturity of the forward contract, and riskfree rate is provided below: Based on the above information and using the Cost-of-Carry Model, which of the following is the correct value of the no-arbitrage Forward Price (F0)? (A) 406.64 (B) 301.25 (C) 0 (D) None of the above Answer: _______________

Q5. Based on the information below, which of the following is the correct value of the no-arbitrage lower bound for European Put Option? Assume no dividend. Spot price (S0) 390 Strike price (K) 450 Risk-free rate (r) 4% Time-to-maturity (T) 0.5 (note: T = 0.5 means maturity of six months) (A) 0 (B) 51.09 (C) 69.09 (D) None of the above Answer: _______________

Q6. Which of the following is/are True? (A) Swaps are used for financial engineering (B) Swaps are traded in exchange-traded markets without financial intermediaries (C) Swaps are based on the principle of competitive advantage (D) All of the above Answer: _______________

Q7. Based on the information below, what position and number of Index Futures contracts are needed to increase the Beta () of the portfolio from 0.8 to 2.2? (A) Short 20 contracts of Index Futures (B) Short 55 contracts of Index Futures (C) Long 35 contracts of Index Futures (D) None of the above Answer: _______________

Q8. Disney wants to borrow Euro at a fixed rate of interest. Volkswagen wants to borrow US dollar at a fixed rate of interest. In terms of borrowing costs, they face the following rates per annum: Euro US dollar Disney 7.25% 3.50% Volkswagen 3.25% 1.00% To create a Swap contract between Disney and Volkswagen, which of the following is Correct? (A) Disney has comparative advantage in Euro; Volkswagen has comparative advantage in US dollar (B) Volkswagen has comparative advantage in Euro; Disney has comparative advantage in US dollar (C) Disney has comparative advantage in both Euro and US dollar (D) Volkswagen has comparative advantage in both Euro and US dollar Answer: _______________

Q9. Which of the following is a Zero Sum Game? (A) Short Forward and Short Futures on the same underlying (B) Long Call Option and Long Put Option on the same underlying (C) Short Call Option and Long Put Option on the same underlying (D) None of the above Answer: _______________

Q10. In order to provide a Portfolio Insurance to hedge against a significant decrease in S&P index, which of the following positions and derivatives should be consider? (A) Long position in Futures on S&P index (B) Short position in Put Options on S&P index (C) Long position in Put Options on S&P index (D) Long position in Call Options on S&P index Answer: _______________

Q11. Which of the following can be valued using Real Options: (I) Firms growth options; (II) Movie sequels; (III) Business expansions and future investments with flexibility (A) II only (B) I only (C) II and III only (D) I, II, and III Answer: _______________