Title Derivatives - Question.pdf ✅

CFA Program Level I for February 2024 1 Derivatives 1. All else held equal, the value of a European call option is best characterized as having a: A. negative relationship with the price of the underlying. B. negative relationship with the volatility of the underlying. C. positive relationship with the time to expiration. 2. All else being equal, which of the following European put options on the same underlying most likely has the highest value? Time to Expiration Exercise Price Option 1 2 months $52 Option 2 4 months $52 Option 3 4 months $58 A. Option 1 B. Option 2 C. Option 3 3. The value of a European put is directly related to the: A. risk-free rate. B. exercise price. C. value of the underlying. 4. An investor gathers the following information about a call option: Option premium $5 Exercise price $25 Price of the underlying at initiation $15 At expiration, if the price of the underlying is $30, the value of the call option to the call seller is:
CFA Program Level I for February 2024 2 A. -$5. B. $0. C. $10. 5. An analyst gathers the following information: Call price $10 Stock price $40 Exercise price $60 Interest rate 3% Time to expiry 1 year According to put-call parity, the price of the put is closest to: A. $28.25. B. $30.00. C. $108.25. 6. Two-year and three-year government benchmark zero-coupon bonds are priced at 96 and 93 (per 100 face value), respectively. The implied one-year forward rate in two years' time is closest to: A. 3.00%. B. 3.23%. C. 3.36%. 7. According to put-call parity, the payoff of a European put option is equivalent to a payoff of a portfolio consisting of. A. a long asset, a short call and a long risk-free bond. B. a short asset, a long call and a long risk-free bond. C. a short asset, a short call and a short risk-free bond.
CFA Program Level I for February 2024 3 8. An investor takes a long position in a risk-free bond and in a forward contract on a non- dividend-paying stock. The forward contract is priced at £50. The annual risk-free rate is 10%. A nine-month put option on the stock with an exercise price of £47 trades at £4. The price of a nine-month call option on the stock with an exercise price of £47 is closest to: A. £6.79. B. £7.22. C. £7.30. 9. Which of the following is most accurate? A. A forward contract is traded on an organized exchange. B. Forward contracts are more transparent than futures contracts. C. The buyer of a forward contract agrees to buy the underlying asset at a fixed price on a future date. 10. A commodities producer selling its inventory forward in anticipation of lower prices in the future is an example of a: A. fair value hedge. B. cash flow hedge. C. net investment hedge. 11. Which of the following is equal to the greater of zero or the present value of the exercise price minus the spot price? A. The lower bound of a put option B. The lower bound of a call option C. The upper bound of a put option 12. Which of the following most likely has an embedded derivative in its structure? A. A put option B. A callable bond
CFA Program Level I for February 2024 4 C. A futures contract 13. Which of the following derivatives most likely requires a payment to be made at the initiation of the contract? A(n): A. swap B. option C. forward 14. Basis risk is best described as a(n): A. investor's inability to meet a margin call due to a lack of funds. B. potential divergence between the expected value of a derivative and its underlying. C. divergence in the cash flow timing of a derivative versus that of an underlying transaction. 15. Which of the following derivative contracts is best described as a contingent claim? A. A swap contract B. A forward contract C. An option contract 16. An investor buys a call option for $4 that has an exercise price of $27. At expiration, if the stock price is $22, the call option payoff is: A. negative. B. zero. C. positive. 17. Which of the following derivatives have a non-linear payoff? A. Contingent claims only B. Forward commitments only C. Both contingent claims and forward commitments