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Caps, floors and collars are instruments designed to:
Caps, floors and collars are instruments designed to:A . Hedge against credit spreads changingB . Hedge gamma risk in option portfoliosC . Hedge interest rate risksD . All of the aboveView AnswerAnswer: C Explanation: Interest rate caps are effectively call options on an underlying interest rate that protect the buyer...
Profits and losses on futures contracts are:
Profits and losses on futures contracts are:A . settled upfrontB . settled upon the expiry of the contractC . settled by moving collateralD . settled dailyView AnswerAnswer: D Explanation: Profits and losses on futures contracts are settled daily. (P&L on forward contracts is often settled upon the expiry of the...
The cheapest to deliver bond for a treasury bond futures contract is the one with the :
The cheapest to deliver bond for a treasury bond futures contract is the one with the :A . the lowest yield to maturity adjusted by the conversion factorB . the lowest couponC . the lowest basis when comparing cash price to the futures spot price adjusted by the conversion factorD...
The value of which of the following options cannot be less than its intrinsic value
The value of which of the following options cannot be less than its intrinsic valueA . a Bermudan putB . a European putC . an American putD . a European callView AnswerAnswer: C Explanation: Note that intrinsic value of an option is the difference between the value of the underlying...
Which of the following option strategies will help him profit should his view be proven correct (assume all strategies described below are long only)?
An investor believes that the market is likely to stay where it is. Which of the following option strategies will help him profit should his view be proven correct (assume all strategies described below are long only)?A . StrangleB . CollarC . Butterfly spreadD . StraddleView AnswerAnswer: C Explanation: Only...
If the quoted discount rate of a 3 month treasury bill futures contract is 10%, what is the price of a 3-month treasury bill with a principal at maturity of $100?
If the quoted discount rate of a 3 month treasury bill futures contract is 10%, what is the price of a 3-month treasury bill with a principal at maturity of $100?A . $90B . $110.00C . $102.50D . $97.50View AnswerAnswer: D Explanation: T-bill futures 'discount' can be converted to a...
How much of the 30 year bond should she buy or sell to hedge against parallel shifts in the yield curve?
An investor holds $1m in a 10 year bond that has a basis point value (or PV01) of 5 cents. She seeks to hedge it using a 30 year bond that has a BPV of 8 cents. How much of the 30 year bond should she buy or sell to...
Which of the following can be used to accomplish this objective?
A borrower pays a floating rate on a loan and wishes to convert it to a position where a fixed rate is paid. Which of the following can be used to accomplish this objective? I. A short position in a fixed rate bond and a long position in an FRN...
If the implied volatility for a call option is 30%, the implied volatility for the corresponding put option is:
If the implied volatility for a call option is 30%, the implied volatility for the corresponding put option is:A . -70%B . 30%C . -30%D . 70%View AnswerAnswer: B Explanation: Implied volatilities are the same for calls and puts with similar exercise and strike prices. If not, it would offer...
Which of the following best describes a shout option?
[According to the PRMIA study guide for Exam 1, Simple Exotics and Convertible Bonds have been excluded from the syllabus. You may choose to ignore this question. It appears here solely because the Handbook continues to have these chapters.] Which of the following best describes a shout option?A . an...
