FIN 601: DERIVATIVES Midterm Exam (Mock Exam) 2025 TIPS WITH
ANSWER KEY Toronto Metropolitan University
Midterm Exam (Mock Exam)
Name:
Instructions: The test is 2 hours in length and consists of multiple choice and short
answers questions. You may use the back of the previous page as additional space if
necessary.
Students are permitted to use a calculator (either scientific or financial) on the test.
This midterm exam is CLOSED BOOK except for the use of a single two-sided 8.5×11
inch crib sheet that students have prepared. Students may not make use of any other
reference material during the exam.
, Multiple Choices: (4 points each) Circle the letter corresponding to the BEST answer. To change your choice, cross out
your old circle and circle another letter. No marks will be deducted for incorrect answers. Round all numbers to the nearest
two decimals.
1. Which of the following trading motives will have the lowest expected return?
A. Hedging
B. Speculation
C. Arbitrage
D. Privately informed trading
E. All of the above has equal risk
2. Consider a call option written on the Apple Inc. stock that matures 3 months from now. Its strike price is $100 and the
current price of Apple Inc. stock is $90. If the price of Apple Inc. stock goes up by $5 over the next 3 months, what is
the payoff of a long call option position?
A. −$5
B. $0
C. $5
D. $10
E. $20
3. Which of the following is true for Forward contracts?
A. Are standardized
B. Carry default risk
C. Have daily cash settlement
D. Require margin account to enter
E. Trade on exchange
4. Which of the following is true?
A. The convenience yield is always positive or zero
B. The convenience yield is always positive for an investment asset
C. The convenience yield is always negative for a consumption asset
D. The convenience yield measures the average return earned by holding futures contract
E. None of the above
Page 2
ANSWER KEY Toronto Metropolitan University
Midterm Exam (Mock Exam)
Name:
Instructions: The test is 2 hours in length and consists of multiple choice and short
answers questions. You may use the back of the previous page as additional space if
necessary.
Students are permitted to use a calculator (either scientific or financial) on the test.
This midterm exam is CLOSED BOOK except for the use of a single two-sided 8.5×11
inch crib sheet that students have prepared. Students may not make use of any other
reference material during the exam.
, Multiple Choices: (4 points each) Circle the letter corresponding to the BEST answer. To change your choice, cross out
your old circle and circle another letter. No marks will be deducted for incorrect answers. Round all numbers to the nearest
two decimals.
1. Which of the following trading motives will have the lowest expected return?
A. Hedging
B. Speculation
C. Arbitrage
D. Privately informed trading
E. All of the above has equal risk
2. Consider a call option written on the Apple Inc. stock that matures 3 months from now. Its strike price is $100 and the
current price of Apple Inc. stock is $90. If the price of Apple Inc. stock goes up by $5 over the next 3 months, what is
the payoff of a long call option position?
A. −$5
B. $0
C. $5
D. $10
E. $20
3. Which of the following is true for Forward contracts?
A. Are standardized
B. Carry default risk
C. Have daily cash settlement
D. Require margin account to enter
E. Trade on exchange
4. Which of the following is true?
A. The convenience yield is always positive or zero
B. The convenience yield is always positive for an investment asset
C. The convenience yield is always negative for a consumption asset
D. The convenience yield measures the average return earned by holding futures contract
E. None of the above
Page 2
