FINC 306 2025/2026 Exam Questions and
Detailed Answers | Get it 100% Correct
1
Answers
What is a Forward Contract? - 🧠 ANSWER ✔✔∙A forward contract is a
binding agreement to buy/sell an underlying asset in the future at a price
set today
Describe the meaning of a forward price, delivery date and payoff of a
forward contract - 🧠 ANSWER ✔✔∙The forward price is the price at which
two parties agree today to transact/deliver in the future
∙The delivery date is the time at which the contract is settled
∙The payoff of a forward contract is the value created by the position at
expiration
Payoff function of forward contracts - 🧠 ANSWER ✔✔∙Long forward: Vt = St
- Fot
∙Short forward: Vt = Fot - St
COPYRIGHT©PROFFKERRYMARTIN 2025/2026. YEAR PUBLISHED 2025. COMPANY REGISTRATION NUMBER: 619652435. TERMS OF USE.
PRIVACY STATEMENT. ALL RIGHTS RESERVED
,What is the value of a forward when it is first initiated? How about its value
sometime after initiation? - 🧠 ANSWER ✔✔∙The value of a forward when it
2
is first initiated is 0.
∙Sometime after initiation its value would have changed due to the
information we would have obtained
What is the main difference between a forward and a futures contract? - 🧠
ANSWER ✔✔∙Forward contracts are customised to the individual
customers needs, whereas futures contracts are standardised, making
them far more liquid than forward contracts and allowing them to be
publicly traded on an exchange with ease
∙Futures contracts are also marked-to-market daily so that settlement
occurs over a range of dates, whereas forward contracts only have one
settlement date
How can we replicate a forward contract using fundamental securities? - 🧠
ANSWER ✔✔∙Long a stock and short a bond
What is an option? - 🧠 ANSWER ✔✔∙An option is a non-binding agreement
that gives you the right but not an obligation to buy or sell an asset in the
future at a price set today
COPYRIGHT©PROFFKERRYMARTIN 2025/2026. YEAR PUBLISHED 2025. COMPANY REGISTRATION NUMBER: 619652435. TERMS OF USE.
PRIVACY STATEMENT. ALL RIGHTS RESERVED
, What is a call? - 🧠 ANSWER ✔✔∙A call is an option that gives the buyer the
right but not an obligation to buy an asset in the future, at a price set today
3
What is a put? - 🧠 ANSWER ✔✔∙A put is an option that gives the owner the
right but not an obligation to sell an asset in the future, at a price set today
Describe the meaning of strike price, maturity date and payoff of an option.
Write down the payoff functions of a call and a put - 🧠 ANSWER ✔✔∙The
strike price is the price the option buyer pays for the underlying if they
exercise their option. For a put it is the price the seller receives if they
exercise their option.
∙The maturity date is the date by which the option must be exercised of
becomes worthless
∙The payoff of an option is the value of the position at the maturity date
∙Payoff long call: Vt = max(St-K, 0)
∙Payoff short call: Vt = -max(St-K, 0)
∙Payoff long put: Vt = max(K-St, 0)
Payoff short put: Vt = -max(K-St, 0)
COPYRIGHT©PROFFKERRYMARTIN 2025/2026. YEAR PUBLISHED 2025. COMPANY REGISTRATION NUMBER: 619652435. TERMS OF USE.
PRIVACY STATEMENT. ALL RIGHTS RESERVED
Detailed Answers | Get it 100% Correct
1
Answers
What is a Forward Contract? - 🧠 ANSWER ✔✔∙A forward contract is a
binding agreement to buy/sell an underlying asset in the future at a price
set today
Describe the meaning of a forward price, delivery date and payoff of a
forward contract - 🧠 ANSWER ✔✔∙The forward price is the price at which
two parties agree today to transact/deliver in the future
∙The delivery date is the time at which the contract is settled
∙The payoff of a forward contract is the value created by the position at
expiration
Payoff function of forward contracts - 🧠 ANSWER ✔✔∙Long forward: Vt = St
- Fot
∙Short forward: Vt = Fot - St
COPYRIGHT©PROFFKERRYMARTIN 2025/2026. YEAR PUBLISHED 2025. COMPANY REGISTRATION NUMBER: 619652435. TERMS OF USE.
PRIVACY STATEMENT. ALL RIGHTS RESERVED
,What is the value of a forward when it is first initiated? How about its value
sometime after initiation? - 🧠 ANSWER ✔✔∙The value of a forward when it
2
is first initiated is 0.
∙Sometime after initiation its value would have changed due to the
information we would have obtained
What is the main difference between a forward and a futures contract? - 🧠
ANSWER ✔✔∙Forward contracts are customised to the individual
customers needs, whereas futures contracts are standardised, making
them far more liquid than forward contracts and allowing them to be
publicly traded on an exchange with ease
∙Futures contracts are also marked-to-market daily so that settlement
occurs over a range of dates, whereas forward contracts only have one
settlement date
How can we replicate a forward contract using fundamental securities? - 🧠
ANSWER ✔✔∙Long a stock and short a bond
What is an option? - 🧠 ANSWER ✔✔∙An option is a non-binding agreement
that gives you the right but not an obligation to buy or sell an asset in the
future at a price set today
COPYRIGHT©PROFFKERRYMARTIN 2025/2026. YEAR PUBLISHED 2025. COMPANY REGISTRATION NUMBER: 619652435. TERMS OF USE.
PRIVACY STATEMENT. ALL RIGHTS RESERVED
, What is a call? - 🧠 ANSWER ✔✔∙A call is an option that gives the buyer the
right but not an obligation to buy an asset in the future, at a price set today
3
What is a put? - 🧠 ANSWER ✔✔∙A put is an option that gives the owner the
right but not an obligation to sell an asset in the future, at a price set today
Describe the meaning of strike price, maturity date and payoff of an option.
Write down the payoff functions of a call and a put - 🧠 ANSWER ✔✔∙The
strike price is the price the option buyer pays for the underlying if they
exercise their option. For a put it is the price the seller receives if they
exercise their option.
∙The maturity date is the date by which the option must be exercised of
becomes worthless
∙The payoff of an option is the value of the position at the maturity date
∙Payoff long call: Vt = max(St-K, 0)
∙Payoff short call: Vt = -max(St-K, 0)
∙Payoff long put: Vt = max(K-St, 0)
Payoff short put: Vt = -max(K-St, 0)
COPYRIGHT©PROFFKERRYMARTIN 2025/2026. YEAR PUBLISHED 2025. COMPANY REGISTRATION NUMBER: 619652435. TERMS OF USE.
PRIVACY STATEMENT. ALL RIGHTS RESERVED
