MCQ Quiz

Question 1 of 15

A call option has an exercise price of USD 45 and a premium of USD 6. If the underlying price at expiration is USD 50, the buyer's profit per unit is most likely?

USD 5 profit
USD 1 loss
USD 1 profit

Question 2 of 15

Assertion (A): In an interest rate swap, the notional principal is usually exchanged at inception.
Reason (R): The notional principal is used to calculate fixed and floating interest payments.

Both A and R are true and R is the correct explanation of A
Both A and R are true but R is not the correct explanation of A
A is true but R is false
A is false but R is true

Question 3 of 15

A futures seller has an initial margin of USD 4,950, a maintenance margin of USD 4,500, and an end-of-day margin balance of USD 4,450. The required margin call is most likely?

USD 50
USD 450
USD 500

Question 4 of 15

An investor is long a forward on 1,000 barrels of oil at USD 64 per barrel. If the spot price at maturity is USD 58.50, the investor's total payoff is most likely?

USD 5,500 gain
USD 5,500 loss
USD 64,000 gain

Question 5 of 15

Assertion (A): An at-the-money call option has zero intrinsic value.
Reason (R): A call option is in the money only when the spot price exceeds the exercise price.

Both A and R are true and R is the correct explanation of A
Both A and R are true but R is not the correct explanation of A
A is true but R is false
A is false but R is true

Question 6 of 15

A put option has an exercise price of USD 40 and a premium of USD 3. The put buyer earns a positive profit only if the underlying price at expiration is most likely below?

USD 40
USD 37
USD 43

Question 7 of 15

Consider the following:
I. A fixed-rate payer on an interest rate swap agrees to a series of future exchanges.
II. A call option buyer pays a premium for the right, but not the obligation, to transact later.
III. A forward contract seller agrees to a single future exchange at a pre-agreed price.
How many of the above are contingent claims rather than firm commitments?

Only one
Only two
All the three

Question 8 of 15

Assertion (A): Option contracts are classified as contingent claims.
Reason (R): The option buyer determines whether and when the trade will settle after paying a premium for that right.

Both A and R are true and R is the correct explanation of A
Both A and R are true but R is not the correct explanation of A
A is true but R is false
A is false but R is true

Question 9 of 15

Assertion (A): A futures contract requires daily settlement of gains and losses.
Reason (R): Futures contracts are standardized and traded on an exchange.

Both A and R are true and R is the correct explanation of A
Both A and R are true but R is not the correct explanation of A
A is true but R is false
A is false but R is true

Question 10 of 15

Consider the following:
I. A call option is in the money when the spot price is below the exercise price.
II. A call option is in the money when the spot price exceeds the exercise price.
III. An at-the-money call option has positive intrinsic value.
How many of the above are correct according to the CFA Curriculum's option moneyness rules?

Only one
Only two
All the three

Question 11 of 15

Consider the following:
I. The floating-rate payer receives a net payment when the market reference rate exceeds the fixed rate for the period.
II. The fixed-rate payer receives a net payment when the market reference rate exceeds the fixed rate for the period.
III. The notional principal is usually exchanged at inception in an interest rate swap.
How many of the above are accurate based on the CFA Curriculum's swap description?

Only one
Only two
All the three

Question 12 of 15

Consider the following:
I. A European option may be exercised at any time from inception until maturity.
II. An American option may be exercised only at maturity.
III. If an option is not exercised, the buyer's loss equals the premium paid.
How many of the above are correct under the CFA Curriculum's description of option exercise?

Only one
Only two
All the three

Question 13 of 15

A gold futures buyer holds one 100-ounce contract. The futures price rises from USD 1,792.13 to USD 1,797.13 in one day. If the initial margin balance is USD 4,950, the ending margin balance is most likely?

USD 5,450
USD 4,450
USD 5,000

Question 14 of 15

Assertion (A): A put option buyer can have a positive payoff but still earn a non-positive profit.
Reason (R): Positive profit requires the option payoff to exceed the premium paid.

Both A and R are true and R is the correct explanation of A
Both A and R are true but R is not the correct explanation of A
A is true but R is false
A is false but R is true

Question 15 of 15

Consider the following:
I. The contract is negotiated over the counter with flexible terms.
II. The contract requires daily settlement of gains and losses through the clearinghouse.
III. The contract uses standardized terms set by an exchange.
How many of the above most accurately describe a forward contract rather than a futures contract?

Only one
Only two
All the three

Forward Commitment and Contingent Claim Features and Instruments

First Principles Thinking: call profit

First Principles Thinking: defining boundary

First Principles Thinking: margin call amount

First Principles Thinking: forward payoff

First Principles Thinking: payoff condition

First Principles Thinking: put break-even for profit

First Principles Thinking: classification rule

First Principles Thinking: causality rule

First Principles Thinking: mechanism versus attribute

First Principles Thinking: classification rule

First Principles Thinking: classification rule

First Principles Thinking: classification rule

First Principles Thinking: futures MTM

First Principles Thinking: payoff-to-profit bridge

First Principles Thinking: classification rule