Question 1) Which of the following is acquired (in addition to a cash payoff

1) Which of the following is acquired (in addition to a cash payoff) when the holder of a put futures exercises?

A) A long position in a futures contract

B) A short position in a futures contract

C) A long position in the underlying asset

D) A short position in the underlying asset

2) Which of the following is acquired (in addition to a cash payoff) when the holder of a call futures exercises?

A) A long position in a futures contract

B) A short position in a futures contract

C) A long position in the underlying asset

D) A short position in the underlying asset

3) The risk-free rate is 5% and the dividend yield on the S&P 500 index is 2%. Which of the following is correct when a futures option on the index is being valued?

A) The futures price of the S&P 500 is treated like a stock paying a dividend yield of 5%

B) The futures price of the S&P 500 is treated like a stock paying a dividend yield of 2%

C) The futures price of the S&P 500 is treated like a stock paying a dividend yield of 3%

D) The futures price of the S&P 500 is treated like a non-dividend-paying stock

4) Which of the following is NOT true?

A) Black’s model can be used to value an American-style option on futures

B) Black’s model can be used to value a European-style option on futures

C) Black’s model can be used to value a European-style option on spot

D) Black’s model is widely used by practitioners

5) Which of the following is true when the futures price exceeds the spot price?

A) Calls on futures should never be exercised early

B) Put on futures should never be exercised early

C) A call on futures is always worth at least as much as the corresponding call on spot

D) A call on spot is always worth at least as much as the corresponding call on futures

6) Which of the following describes a futures-style option?

A) An option on a futures

B) An option on spot with daily settlement

C) A futures on an option payoff

D) None of the above

7) A futures price is currently 40 cents. It is expected to move up to 44 cents or down to 34 cents in the next six months. The risk-free interest rate is 6%. What is the probability of an up movement in a risk-neutral world?

A) 0.4

B) 0.5

C) 0.72

D) 0.6

8) A futures price is currently 40 cents. It is expected to move up to 44 cents or down to 34 cents in the next six months. The risk-free interest rate is 6%. What is the value of a six-month put option with a strike price of 37 cents?

A) 3.00 cents

B) 2.91 cents

C) 1.16 cents

D) 1.20 cents

9) A futures price is currently 40 cents. It is expected to move up to 44 cents or down to 34 cents in the next six months. The risk-free interest rate is 6%. What is the value of a six month call option with a strike price of 39 cents?

A) 5.00 cents

B) 2.91 cents

C) 3.00 cents

D) 4.21 cents

10) Which of the following are true?

A) Futures options are usually European

B) Futures options are usually American

C) Both American and European futures options trade actively are exchanges

D) Both American and European futures options trade actively in the OTC market

11) Which of the following is true for a September futures option?

A) The expiration month of option is September

B) The option was first traded in September

C) The delivery month of the underlying futures contract is September

D) September is the first month when the option can be exercised

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