Derivatives Pricing Quiz

Derivatives Pricing Quiz

University

18 Qs

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Derivatives Pricing Quiz

Derivatives Pricing Quiz

Assessment

Quiz

Business

University

Medium

Created by

Luke Gu

Used 8+ times

FREE Resource

18 questions

Show all answers

1.

MULTIPLE CHOICE QUESTION

1 min • 1 pt

Which of the following statements is most accurate? In derivatives pricing:

investors are assumed to be risk averse.

expected payoffs of the derivative can be discounted at the risk-free rate.

a portfolio consisting of the underlying and the derivative must earn the risk-free rate plus a risk premium.

2.

MULTIPLE CHOICE QUESTION

1 min • 1 pt

Replication is most likely used to:

increase leverage.

reduce portfolio risk.

exploit pricing differentials.

3.

MULTIPLE CHOICE QUESTION

1 min • 1 pt

Convenience yield is primarily associated with which of the following assets?

High-yield bonds

Dividend-paying stocks

Commodities in short supply

4.

MULTIPLE CHOICE QUESTION

1 min • 1 pt

Which of the following statements best describes the relationship between the costs of carry and the forward price?

If the costs of carry exceed the benefits, the forward price would be lower

If the costs of carry exceed the benefits, the forward price would be higher

If the benefits exceed the costs of carry, the forward price would be higher

5.

MULTIPLE CHOICE QUESTION

1 min • 1 pt

An increase in the risk-free rate, r, following the inception of a forward contract will cause which of the following to the forward contract’s MTM value to the forward seller if other parameters remain unchanged.

The forward contract‘s MTM value to the forward seller will be unchanged.

The forward contract’s MTM value to the forward seller will increase.

The forward contract‘s MTM value to the forward seller will decrease.

6.

MULTIPLE CHOICE QUESTION

1 min • 1 pt

Which of the following statements about a forward rate agreement is accurate?

The underlying is a currency exchange rate

The short position hedges against an increase in interest rates

The contract is closely tied to the term structure of interest rates

7.

MULTIPLE CHOICE QUESTION

1 min • 1 pt

Which of the following statements regarding the gains or losses of a long forward contract position compared to a long futures contract position is most correct? Assume that the underlying is identical on both contracts and that both contracts have the same time until maturity.

The daily realized gain or loss of the forward contract position and the futures contract position are equivalent.

Before the contracts mature, the cumulative realized gains or losses of the forward contract position and the futures contract position are equivalent.

At contract maturity, the cumulative realized gains or losses of the forward contract position and the futures contract position are approximately equivalent.

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