Question 1

The price of an interest rate cap is determined by:

I. The period to which the cap relates

II. Volatility of the underlying interest rate

III. The exercise or the strike rate

IV. The risk free rate

Options :

A :

I, II, III and IV

B : I, II and III

C : II, III and IV

D : I, II and IV

Answer: B

Question 2

Which of the following have a negative gamma:

I. a long call position

II. a short put position

III. a short call position

IV. a long put position

Options :

A : III and IV

B : I and IV

C : II and III

D : I and II

Answer: C

Question 3

What is the price of a treasury bill with $100 face maturing in 90 days and yielding 5%?

Options :

A : $95.24

B : $95.00

C : $98.78

D : $101.23

Answer: C

Question 4

Which of the following best describes the efficient frontier?

Options :

A : The efficient frontier identifies portfolios with the lowest return per unit of volatility

B : The efficient frontier identifies portfolios with the highest return per unit of volatility

C : The efficient frontier identifies the market portfolio

D : The efficient frontier identifies portfolios with the highest volatility for a given level of return

Answer: B

Question 5

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