IMT SOLVED ASSIGNMENTS AVAILABLE – FINC003 TEST 2
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MCQ 1: Calculate the present value of bond A whose coupon rate is 7%
a. Rs. 1,000
b. Rs. 1,023.5
c. Rs. 1,034.63
d. Rs. 1,058.89
MCQ 2: Going long on currency and long on a put option results in the pay-off profile of a
a. Put option buyer
b. Put option writer
c. Call option Buyer
d. Call option writer
MCQ 3: If ‘A’ and ‘B’ enter the swap contract, the effective interest ‘A’ would be paying each year.
a. LIBOR +3.5%
b. LIBOR + 3.0%
c. LIBOR +2%
d. LIBOR
MCQ 4: A covered call is
a. Simultaneous buying and writing call option at different strike price
b. Simultaneous buying a call and a put option at the same strike price.
c. Buying a call option with a short position in the underlying asset.
d. None of the above.
MCQ 5: According to the Black Scholes model, the stocks with the call option pays
a. dividends
b. no dividends
c. current price
d. past price
MCQ 6: You purchased a one month forward dollar from bank in New York on April 9, 2015, Friday. The one month forward settlement date is
a. 10-May-15
b. 11-May-15
c. 12-May-15
d. 13-May-15
MCQ 7: What does ‘A’ save by doing the swap and not borrowing from the market at LIBOR + 2.5% floating rate?
a. 1% per year
b. LIBOR +0.5% per year
c. 0.5% per year
d. 5% per year
MCQ 8: Due to mark-to-market, profits and losses are settled at the end of
a. Every day
b. Every month
c. Every week
d. Every three months
MCQ 9: You write one AT&T February 50 put for a premium of $5. Ignoring transactions costs, what is the breakeven price of this position?
a. $50
b. $55
c. $45
d. $40
MCQ 10: The minimum margin, which a customer must maintain with the member at all times, is known as
a. Initial Margin
b. Maintenance margin
c. Variation margin
d. Margin call amount
MCQ11: Options are traded in
a. Exchanges
b. Over-the-counter market
c. Both
d. None
MCQ 12: Top Flight Stock currently sells for $53. A one-year call option with strike price of $58 sells for $10, and the risk free interest rate is 5.5%. What is the price of a one- year put with strike price of $58?
a. $10.00
b. $12.12
c. $16.00
d. $11.97
MCQ 13: Which of the following statements regarding short selling is not true?
a. It is an arbitrage strategy
b. Assets involved are not owned
c. Is possible for all investment assets
d. 2 & 3 both
MCQ 14: According to the Black Scholes model, the purchaser can borrow fraction of security at risk free interest rate which is
a. short term
b. long term
c. transaction cost
d. no transaction cost
MCQ 15: A strangle involves
a. Buying a call and a put with same expiration date and different exercise price.
b. Buying a call and a put with same expiration date and same exercise price.
c. Buying a call and a put with same strike price and different maturities.
d. Buying two calls at same expiration date and different exercise prices.
MCQ 16: A call option has an exercise price of Rs. 15. The spot price of the share is Rs. 19.
a. The option is valuable.
b. The option is in the money.
c. The option is out of money.
d. Both A & B.
MCQ 17: A forward market hedge involves the following except.
a. a fixed amount of foreign currency
b. forward rate
c. forward contract
d. future spot rate
MCQ 18: The theory of purchasing power parity says that.
a. the inflation rates in two countries are unrelated
b. the exchange rate will adjust to reflect changes in the price levels of two countries
c. the inflation rate is greater than the interest rate
d. the interest rate is greater than the inflation rate
MCQ19 ________is the value of the March 482 call on futures contract on December 25, 2014. The futures price is 465.75 and strike price is $482. The risk free interest rate is 8% per year. The last trading day for the futures call is March 15, 2015. The standard deviation is 30%
a. Rs. 17.55
b. Rs. 18.45
c. Rs. 18.55
d. Rs. 16.55
MCQ 20: A short hedge occcccurs when
a. Hedgers seek to eliminate or control the risk exposure that arises due to adverse changes in prices
b. Hedgers seek to eliminate or control the risk exposure associated with the quality that will be bought or sold at some future date
c. A firm that owns or plans to purchase a cash commodity sells futures to hedge their cash position against declining prices
d. A firm purchases to protect itself against a price increase in a commodity prior to purchasing it in either the spot or forward market
MCQ 21: If, at the time of making a contract, no transaction is recorded in the books because delivery and payment are yet to take place, the transaction is called as a/an
a. Executary contract
b. Preliminary contract
c. Future Contract
d. Forward premium contract
MCQ 22: The seller of an option has:
a. Limited liability and unlimited opportunity for gain
b. Unlimited liability and unlimited opportunity
c. Unlimited liability and limited opportunity for gain
d. None of the above
MCQ 23: A straddle consists of
a. Buying a call and selling a put with identical strike rate
b. Writing a call and buying a put with identical expiration date.
c. Buying a call and a put with identical strike rate and expiration date.
d. Buying a call with a farther maturity and writing a put with nearer maturity
MCQ 24: An option-market hedge in foreign exchange risk management is a form of a(n).
a. covered hedge
b. open position
c. balance sheet hedge
d. swap
MCQ 25: The effective interest rate ‘B’ would be paying each year
a. LIBOR +3.5%
b. 13.50%
c. 13%
d. 14%
MCQ 26: Which of the following is the part of the risk management process?
a. Formulate a strategy
b. Identification of risks
c. Quantification of risks
d. all of the above
MCQ 27: In which option does the buyer get the right to buy the underlying asset any time during the contract period?
a. Digital option
b. Asian option
c. American Option
d. Europeon option
MCQ 28: The lifetime high and low figures in the currency futures quotation table mean.
a. the highest and lowest prices during the year
b. the highest and lowest prices during the day
c. the highest and lowest prices for each contract month during its life time
d. the highest and lowest prices for each week
MCQ 29: When you buy a call option on any underlying asset by paying Rs. 3 as a premium with strike Rs. 48, the price of the underlying asset should be you to obtain profits?
a. Rs. 49
b. Rs. 50
c. Rs. 51
d. Less then Rs. 51
MCQ 30: Which of the following is not an assumption of Black-Scholes model?
a. The risk-free interest is constant over the life of the option.
b. All asset markets are perfectly efficient.
c. The option being valued can be exercised anytime before the expiration date.
d. All of the above