CPFM Options, Futures, and Derivatives 5

Question 1

A long straddle profits when:

Accepted Answer

The underlying makes a large move in either direction

Answer

The underlying stays flat

Answer

Volatility decreases sharply

Answer

Interest rates rise only

Question 2

The cost-of-carry model for pricing futures includes all of the following EXCEPT:

Accepted Answer

The clearinghouse fee structure

Answer

Storage costs

Answer

Financing/interest costs

Answer

Income or dividends from the asset

Question 3

Rho measures an option's sensitivity to changes in:

Accepted Answer

Interest rates

Answer

Volatility

Answer

Time decay

Answer

The underlying price

Question 4

A bull call spread is constructed by:

Accepted Answer

Buying a lower-strike call and selling a higher-strike call

Answer

Buying a higher-strike call and selling a lower-strike call

Answer

Buying a call and a put

Answer

Selling a call and buying a put

Question 5

As a futures contract approaches expiration, the futures price and spot price tend to:

Accepted Answer

Converge

Answer

Diverge widely

Answer

Remain unrelated

Answer

Move inversely

Question 6

Which of the following is an example of a plain vanilla derivative?

Accepted Answer

Standard interest rate swap

Answer

Barrier option

Answer

Synthetic CDO

Answer

Variance swap

Question 7

The maximum loss for the buyer of a call option is:

Accepted Answer

The premium paid

Answer

Unlimited

Answer

The strike price

Answer

The underlying price