FINC 445 MIDTERM 2 QUALITATIVE
When a six-month option is purchased, up to __________ of the option price can be borrowed using a margin account.
0%
What is the number of different option series used in creating a butterfly spread?
3
A floating-for-fixed currency swap is equivalent to:
A fixed-for-fixed currency swap and one interest rate swap.
Protective Put
A long position in a stock and a long put on the same stock.
Covered Call
A long position in a stock and a short call on the same stock.
When the volatility increases with all else remaining the same, which of the following is true? A) Both calls and puts increase in value. B) Both calls and puts decrease in value. C) Calls increase in value while puts decrease in value. D) Puts increase in value while calls decrease in value.
A only
Which of the following describes a long position in an option?
A position where an option has been purchased.
Which of the following describes a short position in an option?
A position where an option has been sold.
Which of the following is true for an interest rate swap?
A swap is usually worth close to zero when it is first negotiated.
Which of the following is an example of an option class?
All calls on a certain stock.
Which of the following is an example of an option series?
All calls with a particular time to maturity and strike price on a certain stock.
Which of the following describes an interest rate swap? (A) A way of converting a liability from fixed to floating. (B) A portfolio of forward rate agreements (FRAs). (C) An agreement to exchange interest at a fixed rate for interest at a floating rate.
All of the above
Which of the following is a use of a currency swap? (A) To exchange an investment in one currency for an investment in another currency. (B) To exchange borrowing in one currency for borrowings in another currency. (C) To take advantage of situations where the tax rates in two countries are different.
All of the above
Which of the following is true?
An American call option on a stock should never be exercised early when no dividends are expected.
Which of the following is NOT true? A European put option is always worth less than the present value of the strike price. An American call option is always worth less than the stock price. An American put option is always worth less than the present value of the strike price. A European call option is always worth less than the stock price.
An American put option is always worth less than the present value of the strike price.
Which of the following is a way of valuing interest rate swaps where LIBOR is exchanged for a fixed rate of interest?
Assume that floating payments will equal forward LIBOR rates and discount net cash flows at the risk-free rate.
When interest rates increase with all else remaining the same, which of the following is true? A) Both calls and puts increase in value. B) Both calls and puts decrease in value. C) Calls increase in value while puts decrease in value. D) Puts increase in value while calls decrease in value.
C only
When the stock price increases with all else remaining the same, which of the following is true? A) Both calls and puts increase in value. B) Both calls and puts decrease in value. C) Calls increase in value while puts decrease in value. D) Puts increase in value while calls decrease in value.
C only
Which of the following describes the seven-year swap rate?
The rate than can be earned over 7 years from a series of short-term loans to AA-rated companies.
When dividends increase with all else remaining the same, which of the following is true? A) Both calls and puts increase in value. B) Both calls and puts decrease in value. C) Calls increase in value while puts decrease in value. D) Puts increase in value while calls decrease in value.
D only
When the strike price increases with all else remaining the same, which of the following is true? A) Both calls and puts increase in value. B) Both calls and puts decrease in value. C) Calls increase in value while puts decrease in value. D) Puts increase in value while calls decrease in value.
D only
When the time to maturity increases with all else remaining the same, which of the following is true?
European options are liable to increase or decrease in value.
Which of the following describes LEAPS?
Exchange-traded stock options with longer lives than regular exchange-traded stock options.
Which of the following is NOT traded by the CBOE?
Monthlys
Which of the following is true? (A) A short call is the same as a long put. (B) A long call is the same as a short put. (C) A call on a stock plus a stock is the same as a put.
None of the above
Consider a put option and a call option with the same strike price and time to maturity. Which of the following is true?
One of the options must be either in the money or at the money.
Which of the following is true for American options?
Put-call parity provides an upper and lower bound for the difference between call and put prices.
Which of the following describes the five-year swap rate? (A) The fixed rate of interest which a swap market maker is prepared to pay in exchange for LIBOR on a five-year swap. (B) The fixed rate of interest which a swap market maker is prepared to receive in exchange for LIBOR on a five-year swap.
The average of A and B
Which of the following is true when dividends are expected?
The basic put-call parity formula can be adjusted by subtracting the present value of expected dividends from the stock price.
Which of the following are true for CBOE stock options?
The initial margin and maintenance margin are determined by formulas and are equal.
Which of the following describes a difference between a warrant and an exchange-traded stock option?
The number of warrants is fixed whereas the number of exchange-traded options in existence depends on trading.
Which of the following is true?
The principal amounts usually flow in the opposite direction to interest payments at the beginning of a currency swap and in the same direction as interest payments at the end of the swap.
Which of the following must post margin?
The seller of an option.
Which of the following describes a situation where an American put option on a stock becomes more likely to be exercised early?
The stock price volatility decreases.
Which of the following best describes the intrinsic value of an option?
The value it would have if the owner were forced to exercise immediately.
A company enters into an interest rate swap where it is paying fixed and receiving LIBOR. When interest rates increase, which of the following is true?
The value of the swap to the company increases.
Which of the following is true for the party paying fixed in an interest rate swap?
There is more credit risk when the yield curve is upward sloping than when it is downward sloping.
a long straddle is created by
buying one call, buying one put with the same strike and expiration
A bear put spread is created by:
buying one higher strike price and selling a lower strike put at the same expiration date
A butterfly call spread is created by
buying one lower strike call, buying one higher strike call, and selling two calls with a strike halfway between
A bull call spread is created by:
buying one lower strike price call, selling one higher strike call at the same expiration date
A long strangle is created by
buying one put and buying one call with different strike prices and the same expiration dates
A fixed-for-fixed currency swap:
is equivalent to a long position in one bond and a short position in another bond.
A strap is created by having a
long position in two calls and one put, with the same strike price and expiration date. and an expectation that an increase in the stock price will be more likely.
Options on General Motors (GM) stock are on a March, June, September, and December cycle. What options trade on March 1? Check all months that apply.
march, june, april, september
Options on General Motors (GM) stock are on a March, June, September, and December cycle. What options trade on August 5? Check all months that apply.
september, march, august, december
