Concept: These on-line quiz questions are not specifically linked to AIMs, but are instead based on recent sample questions. The difficulty level is a notch, or two notches, easier than bionicturtle.com's typical AIM-by-AIM question such that the intended difficulty level is nearer to an actual exam question. As these represent "easier than our usual" practice questions, they are well-suited to online simulation.
Questions:
405.1. Your simple derivatives portfolio holds two short positions: you are short a forward contract with a delivery price of $30.00, and you are short a put option with a strike price of $30.00. Both have identical maturities. Which of the positions below has the same payoff (not profit)?
a. Short call option with strike price at $30.00
b. Long call option with strike price at $30.00
c. Long straddle with strike price at $30.00
d. Short bear spread with both strike prices at $30.00
405.2. Ceteris paribus, each of the following can be expected to associate with an increase in the price of a futures contract EXCEPT for which?
a. Increase in the risk-free interest rate
b. Switch from specified delivery day and single location to delivery month and several locations
c. An increase from zero correlation to positive correlation between stochastic interest rates and the underlying spot price
d. Elapse of time--e.g., from F(2/12 years) to F(1/12 years)--while futures curve exhibits normal backwardation
405.3. A trader buys three December futures contract on Corn while each contract is for the delivery of 5,000 bushels. The current futures price is $4.00 (400 cents) per bushel. The initial margin is $2,000 per contract and the maintenance margin is $1,500 per contract. What price change will trigger a margin call?
a. No price change, a margin call is already triggered because the maintenance margin is below the initial margin
b. A 10 cent drop to $3.90 per bushel
c. A 30 cent drop to $3.70 per bushel
d. A $1.00 drop to $3.00 per bushel
Answers here:
Questions:
405.1. Your simple derivatives portfolio holds two short positions: you are short a forward contract with a delivery price of $30.00, and you are short a put option with a strike price of $30.00. Both have identical maturities. Which of the positions below has the same payoff (not profit)?
a. Short call option with strike price at $30.00
b. Long call option with strike price at $30.00
c. Long straddle with strike price at $30.00
d. Short bear spread with both strike prices at $30.00
405.2. Ceteris paribus, each of the following can be expected to associate with an increase in the price of a futures contract EXCEPT for which?
a. Increase in the risk-free interest rate
b. Switch from specified delivery day and single location to delivery month and several locations
c. An increase from zero correlation to positive correlation between stochastic interest rates and the underlying spot price
d. Elapse of time--e.g., from F(2/12 years) to F(1/12 years)--while futures curve exhibits normal backwardation
405.3. A trader buys three December futures contract on Corn while each contract is for the delivery of 5,000 bushels. The current futures price is $4.00 (400 cents) per bushel. The initial margin is $2,000 per contract and the maintenance margin is $1,500 per contract. What price change will trigger a margin call?
a. No price change, a margin call is already triggered because the maintenance margin is below the initial margin
b. A 10 cent drop to $3.90 per bushel
c. A 30 cent drop to $3.70 per bushel
d. A $1.00 drop to $3.00 per bushel
Answers here:
