FINC306 LATEST 2026 FINALS EXAMS QUESTIONS AND
ANSWERS GUARANTEE A+
✔✔Define Arbitrage - ✔✔a situation in which one can generate profits without taking
any risk.
✔✔What do we need at t to have ST at T, if δ = 0? - ✔✔St
✔✔What do we need at t to have ST at T, if δ ≠ 0? - ✔✔St * e^-δ(T-t)
✔✔What do we need at t to have K at T, if δ ≠ 0? - ✔✔K*e^-r(T-t)
✔✔What do we need at t to have ST - K at T? - ✔✔St*e^-δ(T-t) - Ke^-r(T-t)
✔✔What do we need at t to have CT(K) - PT(K) at T? - ✔✔Ct(K) - Pt(K)
✔✔What do we need at t to have CT(K) -PT(K) = ST - K at T? - ✔✔Ct(K) - Pt(K) =
St*e^-δ(T-t) - Ke^-r(T-t)
✔✔What is the No Arbitrage Principal? - ✔✔Is the fundamental law in finance which
states that there is no arbitrage in financial markets.
It is used to prove pricing formulas.
✔✔What is theorem 1? - ✔✔If 2 portfolios have the same payoff on a certain date, T, in
the future, they must have the same value at any time, t, before the future date, T.
✔✔What are the perfect market assumptions? - ✔✔No bid-ask spreads
No transaction costs
Borrowing and lending rates are the same
✔✔For a stock that pays no dividends, what is the value of F0T? - ✔✔Check 1
✔✔For a stock that pays a dividend, D, paid once at time T1 ≤ T, what is the value of
F0T? - ✔✔Check 2
✔✔At time t = 0 the stock price is S0. The continuously compounded risk free rate is r
and the continuously compounded dividend yield is δ.
What is the value of F0T? - ✔✔Check 3
✔✔With continuous compounding risk free rate r, with continuously compounding
dividend yield of δ. At time t = 0, 2 parties entered into a forward contract with delivery
date T and forward price FtT = K. At a later time t, where 0<t<T the price of the
underlying stock becomes St.
, What is Vt? - ✔✔Check 5
✔✔Prove with NAP that F- ≤ FtT ≤ F+
Where F- = (Stb e^-δ(T-t) - 2κ)e^r^ł(T-t)
F+ = (Sta e^-δ(T-t) - 2κ)e^r^♭(T-t) - ✔✔Check 4
✔✔Prove that the current price of a forward in an imperfect market is V- ≤ Vt ≤ V+
Where V- = (Stb e^-δ(T-t) - Ke^-r^ł(T-t) - 2κ
V+ = (Sta e^-δ(T-t) - Ke^-r^♭(T-t) + 2κ - ✔✔Check 6
✔✔What is the return of a forward contract (from 0 to T) if ST > K? - ✔✔Return = (+ve -
0) / 0
Return = +∞
✔✔What is the return of a forward contract (from 0 to T) if ST < K? - ✔✔Return = -∞
✔✔What is the return of a forward contract (from 0 to t)? - ✔✔0
✔✔What is the return of a forward contract (from t to T)? - ✔✔ST
✔✔What is the multiplier formula? - ✔✔Units per claim x index price
So number of contracts x index price
✔✔What is the notional value formula? - ✔✔Multiplier x Fo
✔✔What is the initial margin and what is its formula? - ✔✔It is the amount of money we
need in the margin account to trade futures
Notional Value x Initial margin rate
✔✔What is the maintenance margin formula? - ✔✔Initial margin x maintenance margin
rate
✔✔What is the margin balance formula when longing? - ✔✔IM x e^(r/#periods) +
multiplier x (F - Fo) < MM
✔✔What is the margin balance formula when shorting? - ✔✔IM x e^(r/#periods) +
multiplier x (Fo - F) < MM
✔✔When is a margin call triggered? - ✔✔When margin balance < maintenance margin
ANSWERS GUARANTEE A+
✔✔Define Arbitrage - ✔✔a situation in which one can generate profits without taking
any risk.
✔✔What do we need at t to have ST at T, if δ = 0? - ✔✔St
✔✔What do we need at t to have ST at T, if δ ≠ 0? - ✔✔St * e^-δ(T-t)
✔✔What do we need at t to have K at T, if δ ≠ 0? - ✔✔K*e^-r(T-t)
✔✔What do we need at t to have ST - K at T? - ✔✔St*e^-δ(T-t) - Ke^-r(T-t)
✔✔What do we need at t to have CT(K) - PT(K) at T? - ✔✔Ct(K) - Pt(K)
✔✔What do we need at t to have CT(K) -PT(K) = ST - K at T? - ✔✔Ct(K) - Pt(K) =
St*e^-δ(T-t) - Ke^-r(T-t)
✔✔What is the No Arbitrage Principal? - ✔✔Is the fundamental law in finance which
states that there is no arbitrage in financial markets.
It is used to prove pricing formulas.
✔✔What is theorem 1? - ✔✔If 2 portfolios have the same payoff on a certain date, T, in
the future, they must have the same value at any time, t, before the future date, T.
✔✔What are the perfect market assumptions? - ✔✔No bid-ask spreads
No transaction costs
Borrowing and lending rates are the same
✔✔For a stock that pays no dividends, what is the value of F0T? - ✔✔Check 1
✔✔For a stock that pays a dividend, D, paid once at time T1 ≤ T, what is the value of
F0T? - ✔✔Check 2
✔✔At time t = 0 the stock price is S0. The continuously compounded risk free rate is r
and the continuously compounded dividend yield is δ.
What is the value of F0T? - ✔✔Check 3
✔✔With continuous compounding risk free rate r, with continuously compounding
dividend yield of δ. At time t = 0, 2 parties entered into a forward contract with delivery
date T and forward price FtT = K. At a later time t, where 0<t<T the price of the
underlying stock becomes St.
, What is Vt? - ✔✔Check 5
✔✔Prove with NAP that F- ≤ FtT ≤ F+
Where F- = (Stb e^-δ(T-t) - 2κ)e^r^ł(T-t)
F+ = (Sta e^-δ(T-t) - 2κ)e^r^♭(T-t) - ✔✔Check 4
✔✔Prove that the current price of a forward in an imperfect market is V- ≤ Vt ≤ V+
Where V- = (Stb e^-δ(T-t) - Ke^-r^ł(T-t) - 2κ
V+ = (Sta e^-δ(T-t) - Ke^-r^♭(T-t) + 2κ - ✔✔Check 6
✔✔What is the return of a forward contract (from 0 to T) if ST > K? - ✔✔Return = (+ve -
0) / 0
Return = +∞
✔✔What is the return of a forward contract (from 0 to T) if ST < K? - ✔✔Return = -∞
✔✔What is the return of a forward contract (from 0 to t)? - ✔✔0
✔✔What is the return of a forward contract (from t to T)? - ✔✔ST
✔✔What is the multiplier formula? - ✔✔Units per claim x index price
So number of contracts x index price
✔✔What is the notional value formula? - ✔✔Multiplier x Fo
✔✔What is the initial margin and what is its formula? - ✔✔It is the amount of money we
need in the margin account to trade futures
Notional Value x Initial margin rate
✔✔What is the maintenance margin formula? - ✔✔Initial margin x maintenance margin
rate
✔✔What is the margin balance formula when longing? - ✔✔IM x e^(r/#periods) +
multiplier x (F - Fo) < MM
✔✔What is the margin balance formula when shorting? - ✔✔IM x e^(r/#periods) +
multiplier x (Fo - F) < MM
✔✔When is a margin call triggered? - ✔✔When margin balance < maintenance margin
