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:
410.1. You purchase an at-the-money (ATM) call option with a maturity of one year and a strike price of $60.00 while the non-dividend-paying stock price is also $60.00. The volatility of the stock is 50.0% and the risk-free rate is 4.0%. . There are 250 trading days in the year. If stock returns are i.i.d. normal and the stock's daily expected return (drift) is assumed to be zero, which is nearest to the ten-day 95.0% delta-normal value at risk (VaR) of the long call option position? (please feel free to use this Z lookup table https://learn.bionicturtle.com/images/2014/dailypq/P1.T4.410_1_zlookup.png)
a. $3.77
b. $6.21
c. $9.87
d. $49.35
410.2. You have a long position in a call option with a one year maturity and strike price of $66.00 while the stock price is $70.00. The non-dividend-paying stock's volatility is 50.0% per annum. The percentage (per option) delta is 0.6730 and its gamma is 0.010. The risk-free rate is 4.0%, the stock returns are i.i.d. normal, and we assume the daily stock drift is zero; alternatively, we are computing a relative VaR. If we include the gamma term (aka, quadratic VaR), which is nearest to the 10-day 99.0% confident value at risk (VaR) of the long position in the option?
a. $9.65
b. $10.98
c. $15.77
d. $22.36
410.3. The price of $1,000 face value 20-year zero-coupon bond is $135.34 due to a yield of 10.0% per annum. The daily yield volatility is 1.0% with normally distributed yields. All yields are expressed with continuous compounding. Which is nearest to the daily (quadratic) value-at-risk; quadratic VaR incorporates both duration and convexity?
a. $15.50
b. $24.36
c. $37.20
d. $44.53
Answers here:
Questions:
410.1. You purchase an at-the-money (ATM) call option with a maturity of one year and a strike price of $60.00 while the non-dividend-paying stock price is also $60.00. The volatility of the stock is 50.0% and the risk-free rate is 4.0%. . There are 250 trading days in the year. If stock returns are i.i.d. normal and the stock's daily expected return (drift) is assumed to be zero, which is nearest to the ten-day 95.0% delta-normal value at risk (VaR) of the long call option position? (please feel free to use this Z lookup table https://learn.bionicturtle.com/images/2014/dailypq/P1.T4.410_1_zlookup.png)
a. $3.77
b. $6.21
c. $9.87
d. $49.35
410.2. You have a long position in a call option with a one year maturity and strike price of $66.00 while the stock price is $70.00. The non-dividend-paying stock's volatility is 50.0% per annum. The percentage (per option) delta is 0.6730 and its gamma is 0.010. The risk-free rate is 4.0%, the stock returns are i.i.d. normal, and we assume the daily stock drift is zero; alternatively, we are computing a relative VaR. If we include the gamma term (aka, quadratic VaR), which is nearest to the 10-day 99.0% confident value at risk (VaR) of the long position in the option?
a. $9.65
b. $10.98
c. $15.77
d. $22.36
410.3. The price of $1,000 face value 20-year zero-coupon bond is $135.34 due to a yield of 10.0% per annum. The daily yield volatility is 1.0% with normally distributed yields. All yields are expressed with continuous compounding. Which is nearest to the daily (quadratic) value-at-risk; quadratic VaR incorporates both duration and convexity?
a. $15.50
b. $24.36
c. $37.20
d. $44.53
Answers here:
