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: _______________