Project Financial Instruments Tentamen
1) A one-year call opton on a stock with a strike price of $30 cost $3; a one-year put opton
on the stock with a strike price of $30 costs $4. Suppose that a trader buys two call optons
and one put opton. The breakeven stock price above which the trader aakes a proft is
A) $30
B) $40
C) $36
D) $35
Answer: D. Cost = 2*3+4=10, the proft when stock price is high enough equals: 2*(S-
30)=10, thus S=35
2) Which of the following is true about a long forward contract?
A) The contract becoaes aore valuable at the price of the asset rises
B) The contract is worth zero if the price of the asset declines afer the contract has been
entered into
C) The contract becoaes aore valuable as the price of the asset declines
D) The contract is worth zero if the price of the asset rises afer the contract has been
entered into
Answer: A
3) An investor sells a future contract on an asset when the future price of the asset is
$1,500/unit. Each futures contract is on 100 units of the asset. The contract is closed out
when the future price is $1,540. Which of the following is true?
A) The investor has aade a loss of $2000
B) The investor has aade a gain of $4000
C) The investor has aade a gain of $2000
D) The investor has aade a loss of $4000
Answer: D. Short positon thus: (1500-1540)*100 = -4000
4) A speculator can choose between buying 100 shares of a stock for $40 per share and
buying 1000 European call optons on the stock with a strike price of $45 for $4 per opton.
For the second alternatve to give a beter outcoae at the opton aaturity, the stock price
aust be above
A)$46
B) $55
C) $50
D) $45
Answer: C for shares: 100(S-40)<1000(S-45-4), thus S>50
5) A trader has a portolio worth $5 aillion that airrors the perforaance of a stock inde..
The stock is currently 1,250. Futures contracts trade on the inde. with one contract being
250 taes the inde.. To reaove aarket risk froa the portolio the trader should
, A) Buy 20 contracts
B) Sell 20 contracts
C) Buy 16 contracts
D) sell 16 contracts
Answer: D. (0-1)*5,000,000/(1250*250) = 16
6) A coapany enters into a short futures contract to sell 50,000 units of a coaaodity for 70
cents per unit. The inital aargin is $4000 and the aaintenance aargin is $3000. What is the
futures price per unit above which there will be a aargin call?
A) 72 cents
B)74 cents
C) 78 cents
D) 76 cents
Answer: A. When the loss is greater than 1000<50000*(x-70), x>72
7) A coapany has a $36 aillion portolio with a beta of 1.2. The future price for the contract
on an inde. is 900.
8) Which of the following is true for a non-recourse aortgage?
A) The house buyer has a European style put opton on the house
B) The lender is less likely to lose aoney on the aortgage
C) The house buyer, if unable to aake payaents, can lose all possessions
D) The house buyer has an Aaerican style put opton on the house
Answer: D
9) Suppose that the standard deviaton of aonthly changes in the price of coaaodity A is
$2. The standard deviaton of aonthly changes in a futures price for a contract on
coaaodity B (which is siailar to coaaodity A) is $3. The correlaton between the futures
price and the coaaodity price is 0.9. What hedge rato should be used when hedging a one
aonth e.posure to the price of coaaodity A?
A)0.90
B) 1.45
C)0.67
D)0.60
Answer D 0.9*2/3=0.6
1) A one-year call opton on a stock with a strike price of $30 cost $3; a one-year put opton
on the stock with a strike price of $30 costs $4. Suppose that a trader buys two call optons
and one put opton. The breakeven stock price above which the trader aakes a proft is
A) $30
B) $40
C) $36
D) $35
Answer: D. Cost = 2*3+4=10, the proft when stock price is high enough equals: 2*(S-
30)=10, thus S=35
2) Which of the following is true about a long forward contract?
A) The contract becoaes aore valuable at the price of the asset rises
B) The contract is worth zero if the price of the asset declines afer the contract has been
entered into
C) The contract becoaes aore valuable as the price of the asset declines
D) The contract is worth zero if the price of the asset rises afer the contract has been
entered into
Answer: A
3) An investor sells a future contract on an asset when the future price of the asset is
$1,500/unit. Each futures contract is on 100 units of the asset. The contract is closed out
when the future price is $1,540. Which of the following is true?
A) The investor has aade a loss of $2000
B) The investor has aade a gain of $4000
C) The investor has aade a gain of $2000
D) The investor has aade a loss of $4000
Answer: D. Short positon thus: (1500-1540)*100 = -4000
4) A speculator can choose between buying 100 shares of a stock for $40 per share and
buying 1000 European call optons on the stock with a strike price of $45 for $4 per opton.
For the second alternatve to give a beter outcoae at the opton aaturity, the stock price
aust be above
A)$46
B) $55
C) $50
D) $45
Answer: C for shares: 100(S-40)<1000(S-45-4), thus S>50
5) A trader has a portolio worth $5 aillion that airrors the perforaance of a stock inde..
The stock is currently 1,250. Futures contracts trade on the inde. with one contract being
250 taes the inde.. To reaove aarket risk froa the portolio the trader should
, A) Buy 20 contracts
B) Sell 20 contracts
C) Buy 16 contracts
D) sell 16 contracts
Answer: D. (0-1)*5,000,000/(1250*250) = 16
6) A coapany enters into a short futures contract to sell 50,000 units of a coaaodity for 70
cents per unit. The inital aargin is $4000 and the aaintenance aargin is $3000. What is the
futures price per unit above which there will be a aargin call?
A) 72 cents
B)74 cents
C) 78 cents
D) 76 cents
Answer: A. When the loss is greater than 1000<50000*(x-70), x>72
7) A coapany has a $36 aillion portolio with a beta of 1.2. The future price for the contract
on an inde. is 900.
8) Which of the following is true for a non-recourse aortgage?
A) The house buyer has a European style put opton on the house
B) The lender is less likely to lose aoney on the aortgage
C) The house buyer, if unable to aake payaents, can lose all possessions
D) The house buyer has an Aaerican style put opton on the house
Answer: D
9) Suppose that the standard deviaton of aonthly changes in the price of coaaodity A is
$2. The standard deviaton of aonthly changes in a futures price for a contract on
coaaodity B (which is siailar to coaaodity A) is $3. The correlaton between the futures
price and the coaaodity price is 0.9. What hedge rato should be used when hedging a one
aonth e.posure to the price of coaaodity A?
A)0.90
B) 1.45
C)0.67
D)0.60
Answer D 0.9*2/3=0.6
