Hull: Options, Futures, and other derivatives
Study online at https://quizlet.com/_d2cjpi
1. A derivative is best de- C
scribed as a financial in- C is correct. A derivative is a financial instrument that transforms the per-
strument that derives formance of the underlying. The transformation of performance function
its performance by: of derivatives is what distinguishes it from mutual funds and exchange
A. passing through the traded funds that pass through the returns of the underlying.
returns of the underly- A is incorrect because derivatives, in contrast to mutual funds and ex-
ing change traded funds, do not simply pass through the returns of the
B. replicating the per- underlying at payout.
formance of the under- B is incorrect because a derivative transforms rather than replicates the
lying performance of the underlying.
C. transforming the
performance of the un-
derlying
2. Which statement best C
describes he early ex- C is correct. Only deep-in-the-money put options may be exercised early.
ercise of non-dividend The price cannot fall below zero, so the additional upside of such an option
paying American op- is limited.
tions? Earl exercise may A is incorrect because being deep in the money is no reason for an early
be advantageous for: exercise of call options because there are no theoretical limits to further
A. both price increases.
deep-in-the-money B is incorrect because being deep in the money is no reason for an early
calls and exercise of call options because there are no theoretical limits to further
deep-in-the-money price increases.
puts
B. deep-in-the-money
calls
C. deep-in-the-money
puts
3. At expiration, the value C
of options include
1/9
, Hull: Options, Futures, and other derivatives
Study online at https://quizlet.com/_d2cjpi
A. Time to value and ex-
ercise value
B. Time to value but not
exercise value
C. Exercise value but
not time to value
4. Which following state- A
ment is correct about
the long position of for-
ward contract?
A. As the price goes
up, the value of posi-
tion goes up
B. As the risk free rate
increases the value of
position decreases
C. As the time to value
of forward contract in-
crease, the value of po-
sition decreases
5. If futures price is small- B
er than the expected Convenience yield is the benefit or premium that an investor receives for
spot rate, the reason is holding a physical commodity rather than a futures contract. It represents
A. Interest rate the benefit of holding a physical commodity over a futures contract and
B. Convenience yield includes factors such as storage costs, insurance costs, and transportation
C. Storage cost costs.
6. One investor sets up a C
covered call. The cur- A covered call is an options strategy where an investor holds a long
rent spot rate is 45; the position in an asset and writes (sells) call options on that same asset in
2/9
Study online at https://quizlet.com/_d2cjpi
1. A derivative is best de- C
scribed as a financial in- C is correct. A derivative is a financial instrument that transforms the per-
strument that derives formance of the underlying. The transformation of performance function
its performance by: of derivatives is what distinguishes it from mutual funds and exchange
A. passing through the traded funds that pass through the returns of the underlying.
returns of the underly- A is incorrect because derivatives, in contrast to mutual funds and ex-
ing change traded funds, do not simply pass through the returns of the
B. replicating the per- underlying at payout.
formance of the under- B is incorrect because a derivative transforms rather than replicates the
lying performance of the underlying.
C. transforming the
performance of the un-
derlying
2. Which statement best C
describes he early ex- C is correct. Only deep-in-the-money put options may be exercised early.
ercise of non-dividend The price cannot fall below zero, so the additional upside of such an option
paying American op- is limited.
tions? Earl exercise may A is incorrect because being deep in the money is no reason for an early
be advantageous for: exercise of call options because there are no theoretical limits to further
A. both price increases.
deep-in-the-money B is incorrect because being deep in the money is no reason for an early
calls and exercise of call options because there are no theoretical limits to further
deep-in-the-money price increases.
puts
B. deep-in-the-money
calls
C. deep-in-the-money
puts
3. At expiration, the value C
of options include
1/9
, Hull: Options, Futures, and other derivatives
Study online at https://quizlet.com/_d2cjpi
A. Time to value and ex-
ercise value
B. Time to value but not
exercise value
C. Exercise value but
not time to value
4. Which following state- A
ment is correct about
the long position of for-
ward contract?
A. As the price goes
up, the value of posi-
tion goes up
B. As the risk free rate
increases the value of
position decreases
C. As the time to value
of forward contract in-
crease, the value of po-
sition decreases
5. If futures price is small- B
er than the expected Convenience yield is the benefit or premium that an investor receives for
spot rate, the reason is holding a physical commodity rather than a futures contract. It represents
A. Interest rate the benefit of holding a physical commodity over a futures contract and
B. Convenience yield includes factors such as storage costs, insurance costs, and transportation
C. Storage cost costs.
6. One investor sets up a C
covered call. The cur- A covered call is an options strategy where an investor holds a long
rent spot rate is 45; the position in an asset and writes (sells) call options on that same asset in
2/9
