FINC 306 FINAL EXAM 2025 2026
COMPLETE FINANCE STUDY GUIDE KEY
CONCEPTS PRACTICE QUESTIONS
CALCULATIONS and EXAM PREPARATION
synthetic long forward - CORRECT ANSWER-buying a call and
selling a put on the same underlying asset, with each option having the
same strike price and time to expiration: CT(K)-PT(K)
two main differences between synthetic forward and actual forward -
CORRECT ANSWER-forward contract has zero premium, synthetic
pays net option premium
forward contract pays forward price (Ft,T), synthetic pays strike price (K)
Static replication - CORRECT ANSWER-the units of securities and
replicating derivatives will not be changed at any time before maturity date.
the portfolio has the same CF's as the reference asset. Long a stock and
short a bond with a face value of K
dynamic replication - CORRECT ANSWER-units of securities and
replicating derivatives will change dynamically before maturity. does not
have the same CF's as the reference asset
put-call parity - CORRECT ANSWER-(example of static replication):
CT(K)-PT(K)=ST-K
, (LHS: long a call and short a put, RHS: long a stock and short a bond)
straddle - CORRECT ANSWER-buying a call and a put with the same
strike price and time to expiration, for investors who think the market is
very volatile: CT(K)+PT(K)
Strangle - CORRECT ANSWER-buying an OTM call and put with the
same time to expiration, used to reduce high premium cost associated with
a straddle: CT(K2)+PT(K1)
Bull spread - CORRECT ANSWER-one buys a call and sells an
otherwise identical call with a higher strike price, used when market is
expected to appreciate: CT(K1)-CT(K2)
Bear spread - CORRECT ANSWER-one sells a put and buys an
otherwise identical put with a higher strike price, used when market is
expected to depreciate: -PT(K1)+PT(K2)
Butterfly spread - CORRECT ANSWER-a position in which one sells
multiple calls (puts) with different strike prices
No-arbitrage principle - CORRECT ANSWER-fundamental law in
finance there is no arbitrage in financial markets. it used to prove the
pricing formulas
Theorem 1 - CORRECT ANSWER-if two portfolios have the same
payoff on a certain date, they must have the same value at any time t before
that
COMPLETE FINANCE STUDY GUIDE KEY
CONCEPTS PRACTICE QUESTIONS
CALCULATIONS and EXAM PREPARATION
synthetic long forward - CORRECT ANSWER-buying a call and
selling a put on the same underlying asset, with each option having the
same strike price and time to expiration: CT(K)-PT(K)
two main differences between synthetic forward and actual forward -
CORRECT ANSWER-forward contract has zero premium, synthetic
pays net option premium
forward contract pays forward price (Ft,T), synthetic pays strike price (K)
Static replication - CORRECT ANSWER-the units of securities and
replicating derivatives will not be changed at any time before maturity date.
the portfolio has the same CF's as the reference asset. Long a stock and
short a bond with a face value of K
dynamic replication - CORRECT ANSWER-units of securities and
replicating derivatives will change dynamically before maturity. does not
have the same CF's as the reference asset
put-call parity - CORRECT ANSWER-(example of static replication):
CT(K)-PT(K)=ST-K
, (LHS: long a call and short a put, RHS: long a stock and short a bond)
straddle - CORRECT ANSWER-buying a call and a put with the same
strike price and time to expiration, for investors who think the market is
very volatile: CT(K)+PT(K)
Strangle - CORRECT ANSWER-buying an OTM call and put with the
same time to expiration, used to reduce high premium cost associated with
a straddle: CT(K2)+PT(K1)
Bull spread - CORRECT ANSWER-one buys a call and sells an
otherwise identical call with a higher strike price, used when market is
expected to appreciate: CT(K1)-CT(K2)
Bear spread - CORRECT ANSWER-one sells a put and buys an
otherwise identical put with a higher strike price, used when market is
expected to depreciate: -PT(K1)+PT(K2)
Butterfly spread - CORRECT ANSWER-a position in which one sells
multiple calls (puts) with different strike prices
No-arbitrage principle - CORRECT ANSWER-fundamental law in
finance there is no arbitrage in financial markets. it used to prove the
pricing formulas
Theorem 1 - CORRECT ANSWER-if two portfolios have the same
payoff on a certain date, they must have the same value at any time t before
that
