1. What are the minimum values (lower bounds) of an American-style and a European-style 3-month call option with a strike price of $90 on a non-dividend-paying stock trading at $96 if the risk-free rate is 3%?
   1. American: $6.00, European: $6.00
   2. American: $6.00, European: $5.62
   3. American: $6.62, European: $6.62
   4. None of the above
2. An agreement by Microsoft to receive 6-month LIBOR & pay a fixed rate of 5% per annum every 6 months for 3 years on a notional principal of $10 million. What is the net cash flow in period 3 if 6-month LIBOR at start of period 3 is 5.5%?
   1. $275,000
   2. on
   3. -$250,000
   4. $25,000
   5. $50,000
3. When dealing with futures and forwards, an increase in the basis will __________ a long hedger and __________ a short hedger.
   1. hurt; benefit
   2. hurt; hurt
   3. benefit; hurt
   4. benefit; benefit
   5. benefit; have no effect
4. On January 1, the listed spot and futures prices of a Treasury bond were 93.8 and 93.13. You purchased $100,000 par value Treasury bonds and sold one Treasury bond futures contract. One month later, the listed spot price and futures prices were 94 and 94.09, respectively. If you were to liquidate your position, your profit/loss would be _____?
   1. -$125
   2. $125
   3. -$12.50
   4. $1,250
   5. None of the above
5. On April 1, you sold one S&P 500 index futures contract at a futures price of 950. If on June 15^th the futures price were 1012, what would be your profit (loss) if you closed your position (without considering transactions costs)?
   1. -$1,550
   2. $1,550
   3. -$15,550
   4. $15,550
   5. None of the above
6. If a trader holding a long position in oil futures fails to meet the obligations of a futures contract, the party that is hurt by the failure is
   1. The offsetting short trader
   2. The oil producer
   3. The clearinghouse
   4. The commodities dealer
   5. The broker
7. Given a stock index with a current spot price of $1500, an anticipated annual dividend of 0.8% (compounded continuously) and a risk-free rate of 5.75% (compounded continuously), what should be the fair market delivery price of one futures contract on the index?
   1. $1,427.56
   2. $1,574.25
   3. $1,601.53
   4. $1,406.44
   5. $1,576.12
8. Thornton, Inc. needs to invest five million Nepalese rupees in its Nepalese subsidiary to support local operations. Thornton would like its subsidiary to repay the rupees in one year. Thornton would like to engage in a swap transaction. Thus, Thornton would:
   1. Convert the rupees to dollars in the spot market today and convert rupees to dollars in one year at today's forward rate.
   2. Convert the dollars to rupees in the spot market today and convert dollars to rupees in one year at the prevailing spot rate.
   3. Convert the dollars to rupees in the spot market today and convert rupees to dollars in one year at today's forward rate.
   4. Convert the dollars to rupees in the spot market today and convert rupees to dollars in one year at the prevailing spot rate.
9. Which of the following is true?
   1. The convenience yield is always positive or zero
   2. The convenience yield is always positive for an investment asset
   3. The convenience yield is always negative for a consumption good
   4. The convenience yield measures the average return earned by holding futures contracts
10. 10. Which of the following is true?

I Nonrecourse mortgages give the purchaser a free American style put option on the house

II Nonrecourse mortgages give the purchaser a free European style put option on the house

III Stockholders have essentially a call option on the value of the firm with an exercise price equal to the present value of the company