Question 1

If zero rates with continuous compounding for 4 and 5 years are 4% and 5% respectively, what is the forward rate for year 5?

Options :

A : 5%

B : 9%

C : 9.097%

D : 7%

Answer: B

Question 2

The two components of risk in a commodities futures portfolio are:

Options :

A : Changes in the convenience yield and storage costs

B : Changes in spot prices and carrying costs, also called commodity lease rates

C : Changes in interest rates and spot prices

D : The risk from change in basis and interest rates

Answer: B

Question 3

Which of the following is not a money market security

Options :

A : Treasury notes

B : Treasury bills

C : Bankers' acceptances

D : Commercial paper

Answer: A

Question 4

An early exercise of an American call option is advisable whenever the option is deep in the money and delta approaches 1

Options :

A :

An early exercise of an American call option is advisable whenever the option is deep in the money and delta approaches 1

B :

An early exercise of an American call option may be justified if an extraordinarily large dividend payment is imminent

C :

An early exercise of an American call option is never a good idea as an option is always worth more alive than when it is dead

D : An early exercise of an American option, if ever to be done, should be done immediately after an exdividend date

Answer: B

Question 5

If interest rates and spot prices stay the same, an increase in the value of a call option will be accompanied by:

Options :

A : a decrease in the value of the corresponding put option

B : an indeterminate change in the value of the corresponding put option

C : an increase in the value of the corresponding put option

D : no impact in the value of the corresponding put option

Answer: C

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