Examen 1. Etapa 1 Derivatives

Compared to exchange-traded derivatives, over-the-counter (OTC) derivatives are most likely characterized by:

Which of the following best distinguishes a forward commitment from a contingent claim?

An investor purchases a call option on a stock with an exercise price of $50 and pays a premium of $4. At expiration, the stock price is $58. The investor’s profit is closest to:

Which of the following is most accurately described as a benefit of derivative instruments?

In the context of derivative pricing, replication is best described as:

At initiation of a forward contract, the value of the contract to both the long and short party is closest to:

An investor wants to lock in a borrowing rate for a 6-month loan beginning in 3 months. The appropriate instrument is most likely a:

Forward and futures prices on the same underlying asset with the same maturity are most likely to differ when:

The fixed rate on a newly initiated interest rate swap is set such that the swap’s value at initiation is:

An increase in the risk-free interest rate will most likely:

According to put-call parity, a European call option can be replicated by:

In a one-period binomial model, a stock is currently priced at $100. In one period, the price will either rise to $120 or fall to $85. The risk-free rate is 5% per period. The risk-neutral probability of an up move is closest to:

In the context of derivatives pricing, risk neutrality means that:

Which of the following best describes the notional principal of a derivative contract?

An investor holds a long futures position on a bond. Interest rates rise unexpectedly. The investor will most likely:

A company enters a 3-year fixed-for-floating interest rate swap, paying fixed and receiving EURIBOR. Compared to a series of FRAs, the swap is most likely:

A European call option has a market price of $7. The underlying stock trades at $55 and the exercise price is $50. The time value of this option is closest to:

A European put option with exercise price $70 is priced at $4. The underlying stock is at $68, and the present value of the exercise price is $67. According to put-call parity, the call option price is closest to:

The forward price of a commodity is most likely higher than its spot price when:

The risk that a derivatives dealer may be unable to close out a position at a fair price due to insufficient market activity is best described as: