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Derivatives MCQ - Derivatives Section 2

51 Assuming everything else constant, which of the following best describes changes that result in a decrease in the value of a put option?

	Risk-Free	Rate Volatility
A.	increase	Decrease
B.	Decrease	Decrease
C.	Decrease	Increase

Lower volatility on the underlying decreases the option’s value for both puts and calls. Increase in risk free rate increases the value of a call option but reduces the value of a put option.

52 Which of the following will most likely cause a European put option to be worth less?

A decrease in the risk free rate will cause a put option to be worth more. A decrease in time to maturity will generally cause a put option to be worth less. A decrease in the price of the underlying will cause the put option price to increase. The best option is B.

53 American and European call options are written on the same underlying and both options have the same expiration date and exercise price. At expiration:

Since we are at expiration both options will have the same value.

54 At expiration, an American call option will be valuable if the underlying price is:

At expiration, an American call option will be valuable if the underlying price is greater than the exercise price.

55 According to put-call parity, which of the following relationships hold?

The put and underlying make up a protective put, while the call and present value of the exercise price make up a fiduciary call.

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Question:

Which of the following statements is most accurate?

A. A swap is equivalent to a series of forward contracts, each created at the swap price.
B. A swap is equivalent to a series of long forward contracts, matched with short future contracts.
C. A swap is equivalent to a series of forward contracts, each created at their appropriate forward prices.

Correct answer: A

Explanation:

Each implicit forward contract is said to be off-market, because it is created at the swap price, not the appropriate forward price, which would be the price created…

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