TEST BANK FOR OPTIONS, FUTURES, AND OTHER DERIVATIVES
NINTH EDITION, GLOBAL EDITION (ENGLISH AND SPANISH
EDITION) PAPERBACK – IMPORT, JANUARY 1, 2014
BY HULL/ CHAPTER 1- 26| 2025/2026 QUESTIONS WITH 100%
VERIFIED ANSWER- DETAILED SOLUTIONS
, TABLE OF CONTENTS
1. Introduction
2. Mechanics of Futures Markets
3. Hedging Strategies Using Futures
4. Interest Rates
5. Determination of Forward and Futures Prices
6. Interest Rate Futures
7. Swaps
8. Securitization and the Credit Crisis of 2007
9. OIS Discounting, Credit Issues, and Funding Costs
10. Mechanics of Options Markets
11. Properties of Stock Options
12. Trading Strategies Involving Options
13. Binomial Trees
14. Wiener Processes and Ito’s Lemma
15. The Black-Scholes-Merton Model
16. Employee Stock Options
17. Options on Stock Indices and Currencies
18. Options on Futures
19. Greek Letters
20. Volatility Smiles
,21. Basic Numerical Procedures
22. Value at Risk
23. Estimating Volatilities and Correlations for Risk Management
24. Credit Risk
25. Credit Derivatives
26. Exotic Options
HULL: OPTIONS, FUTURES, AND OTHER DERIVATIVES, NINTH EDITION, GLOBAL EDITION
CHAPTER 1: INTRODUCTION
MULTIPLE CHOICE: QUESTIONS WITH ANSWERS
1. A ONE-YEAR FORWARD CONTRACT IS AN AGREEMENT WHERE
A. ONE SIDE HAS THE RIGHT TO BUY AN ASSET FOR A CERTAIN PRICE IN ONE YEAR’S TIME.
B. ONE SIDE HAS THE OBLIGATION TO BUY AN ASSET FOR A CERTAIN PRICE IN ONE YEAR’S
TIME.
C. ONE SIDE HAS THE OBLIGATION TO BUY AN ASSET FOR A CERTAIN PRICE AT SOME
TIME DURING THE NEXT YEAR.
D. ONE SIDE HAS THE OBLIGATION TO BUY AN ASSET FOR THE MARKET PRICE IN ONE YEAR’S
TIME.
CORRECT ANS>> B
A ONE-YEAR FORWARD CONTRACT IS AN OBLIGATION TO BUY OR SELL IN ONE YEAR’S TIME FOR A
PREDETERMINED PRICE. BY CONTRAST, AN OPTION IS THE RIGHT TO BUY OR SELL.
2. WHICH OF THE FOLLOWING IS NOT TRUE
A. WHEN A CBOE CALL OPTION ON IBM IS EXERCISED, IBM ISSUES MORE STOCK
B. AN AMERICAN OPTION CAN BE EXERCISED AT ANY TIME DURING ITS LIFE
C. AN CALL OPTION WILL ALWAYS BE EXERCISED AT MATURITY IF THE UNDERLYING ASSET
PRICE IS GREATER THAN THE STRIKE PRICE
D. A PUT OPTION WILL ALWAYS BE EXERCISED AT MATURITY IF THE STRIKE PRICE IS
GREATER THAN THE UNDERLYING ASSET PRICE.
CORRECT ANS>> A
WHEN AN IBM CALL OPTION IS EXERCISED THE OPTION SELLER MUST BUY SHARES IN THE
MARKET TO SELL TO THE OPTION BUYER. IBM IS NOT INVOLVED IN ANY WAY. ANSWERS B, C,
AND D ARE TRUE.
3. A ONE-YEAR CALL OPTION ON A STOCK WITH A STRIKE PRICE OF $30 COSTS $3; A ONE-YEAR PUT
OPTION ON THE STOCK WITH A STRIKE PRICE OF $30 COSTS $4. SUPPOSE THAT A TRADER BUYS
, TWO CALL OPTIONS AND ONE PUT OPTION. THE BREAKEVEN STOCK PRICE ABOVE WHICH THE
TRADER MAKES A PROFIT IS
A. $35
B. $40
C. $30
D. $36
CORRECT ANS>> A
WHEN THE STOCK PRICE IS $35, THE TWO CALL OPTIONS PROVIDE A PAYOFF OF 2×(35−30) OR
$10. THE PUT OPTION PROVIDES NO PAYOFF. THE TOTAL COST OF THE OPTIONS IS 2×3+ 4 OR
$10. THE STOCK PRICE IN A,
$35, IS THEREFORE THE BREAKEVEN STOCK PRICE ABOVE WHICH THE POSITION IS PROFITABLE
BECAUSE IT IS THE PRICE FOR WHICH THE COST OF THE OPTIONS EQUALS THE PAYOFF.
4. A ONE-YEAR CALL OPTION ON A STOCK WITH A STRIKE PRICE OF $30 COSTS $3; A ONE-YEAR PUT
OPTION ON THE STOCK WITH A STRIKE PRICE OF $30 COSTS $4. SUPPOSE THAT A TRADER BUYS
TWO CALL OPTIONS AND ONE PUT
NINTH EDITION, GLOBAL EDITION (ENGLISH AND SPANISH
EDITION) PAPERBACK – IMPORT, JANUARY 1, 2014
BY HULL/ CHAPTER 1- 26| 2025/2026 QUESTIONS WITH 100%
VERIFIED ANSWER- DETAILED SOLUTIONS
, TABLE OF CONTENTS
1. Introduction
2. Mechanics of Futures Markets
3. Hedging Strategies Using Futures
4. Interest Rates
5. Determination of Forward and Futures Prices
6. Interest Rate Futures
7. Swaps
8. Securitization and the Credit Crisis of 2007
9. OIS Discounting, Credit Issues, and Funding Costs
10. Mechanics of Options Markets
11. Properties of Stock Options
12. Trading Strategies Involving Options
13. Binomial Trees
14. Wiener Processes and Ito’s Lemma
15. The Black-Scholes-Merton Model
16. Employee Stock Options
17. Options on Stock Indices and Currencies
18. Options on Futures
19. Greek Letters
20. Volatility Smiles
,21. Basic Numerical Procedures
22. Value at Risk
23. Estimating Volatilities and Correlations for Risk Management
24. Credit Risk
25. Credit Derivatives
26. Exotic Options
HULL: OPTIONS, FUTURES, AND OTHER DERIVATIVES, NINTH EDITION, GLOBAL EDITION
CHAPTER 1: INTRODUCTION
MULTIPLE CHOICE: QUESTIONS WITH ANSWERS
1. A ONE-YEAR FORWARD CONTRACT IS AN AGREEMENT WHERE
A. ONE SIDE HAS THE RIGHT TO BUY AN ASSET FOR A CERTAIN PRICE IN ONE YEAR’S TIME.
B. ONE SIDE HAS THE OBLIGATION TO BUY AN ASSET FOR A CERTAIN PRICE IN ONE YEAR’S
TIME.
C. ONE SIDE HAS THE OBLIGATION TO BUY AN ASSET FOR A CERTAIN PRICE AT SOME
TIME DURING THE NEXT YEAR.
D. ONE SIDE HAS THE OBLIGATION TO BUY AN ASSET FOR THE MARKET PRICE IN ONE YEAR’S
TIME.
CORRECT ANS>> B
A ONE-YEAR FORWARD CONTRACT IS AN OBLIGATION TO BUY OR SELL IN ONE YEAR’S TIME FOR A
PREDETERMINED PRICE. BY CONTRAST, AN OPTION IS THE RIGHT TO BUY OR SELL.
2. WHICH OF THE FOLLOWING IS NOT TRUE
A. WHEN A CBOE CALL OPTION ON IBM IS EXERCISED, IBM ISSUES MORE STOCK
B. AN AMERICAN OPTION CAN BE EXERCISED AT ANY TIME DURING ITS LIFE
C. AN CALL OPTION WILL ALWAYS BE EXERCISED AT MATURITY IF THE UNDERLYING ASSET
PRICE IS GREATER THAN THE STRIKE PRICE
D. A PUT OPTION WILL ALWAYS BE EXERCISED AT MATURITY IF THE STRIKE PRICE IS
GREATER THAN THE UNDERLYING ASSET PRICE.
CORRECT ANS>> A
WHEN AN IBM CALL OPTION IS EXERCISED THE OPTION SELLER MUST BUY SHARES IN THE
MARKET TO SELL TO THE OPTION BUYER. IBM IS NOT INVOLVED IN ANY WAY. ANSWERS B, C,
AND D ARE TRUE.
3. A ONE-YEAR CALL OPTION ON A STOCK WITH A STRIKE PRICE OF $30 COSTS $3; A ONE-YEAR PUT
OPTION ON THE STOCK WITH A STRIKE PRICE OF $30 COSTS $4. SUPPOSE THAT A TRADER BUYS
, TWO CALL OPTIONS AND ONE PUT OPTION. THE BREAKEVEN STOCK PRICE ABOVE WHICH THE
TRADER MAKES A PROFIT IS
A. $35
B. $40
C. $30
D. $36
CORRECT ANS>> A
WHEN THE STOCK PRICE IS $35, THE TWO CALL OPTIONS PROVIDE A PAYOFF OF 2×(35−30) OR
$10. THE PUT OPTION PROVIDES NO PAYOFF. THE TOTAL COST OF THE OPTIONS IS 2×3+ 4 OR
$10. THE STOCK PRICE IN A,
$35, IS THEREFORE THE BREAKEVEN STOCK PRICE ABOVE WHICH THE POSITION IS PROFITABLE
BECAUSE IT IS THE PRICE FOR WHICH THE COST OF THE OPTIONS EQUALS THE PAYOFF.
4. A ONE-YEAR CALL OPTION ON A STOCK WITH A STRIKE PRICE OF $30 COSTS $3; A ONE-YEAR PUT
OPTION ON THE STOCK WITH A STRIKE PRICE OF $30 COSTS $4. SUPPOSE THAT A TRADER BUYS
TWO CALL OPTIONS AND ONE PUT
