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Suppose the S&P is trading at a level of 1000. Using continuously compounded rates, calculate the futures price for a contract expiring in three months, assuming expected dividends to be 2% and the interest rate for futures funding to be 5% (both rates expressed as continuously compounded rates)
Suppose the S&P is trading at a level of 1000. Using continuously compounded rates, calculate the futures price for a contract expiring in three months, assuming expected dividends to be 2% and the interest rate for futures funding to be 5% (both rates expressed as continuously compounded rates)A . $1,007.50B...
What is the equivalent continuously compounded rate of return?
A bank advertises its certificates of deposits as yielding a 5.2% annual effective rate. What is the equivalent continuously compounded rate of return?A . 4.82%B . 5%C . 5.07%D . 5.20%View AnswerAnswer: C Explanation: The equivalent continuously compounded rate in this case can be calculated as ln(1+5.2%) = 5.07%. The...
A receiver option on a swap is a swaption that gives the buyer the right to:
A receiver option on a swap is a swaption that gives the buyer the right to:A . swap two options between the two counterpartiesB . receive the fixed rate and pay a variable rateC . receive the swap spread in effect on a future date and pay a variable underlying...
A utility function expresses:
A utility function expresses:A . Risk probabilitiesB . Risk alternativesC . Risk assessmentD . Risk attitudeView AnswerAnswer: D Explanation: A utility function provides a description of an individual or a firm's risk attitude. It expresses how risk seeking or risk averse a firm or an individual is. The utility function...
What is the current conversion premium for a convertible bond where $100 in market value of the bond is convertible into two shares and the current share price is $50?
[According to the PRMIA study guide for Exam 1, Simple Exotics and Convertible Bonds have been excluded from the syllabus. You may choose to ignore this question. It appears here solely because the Handbook continues to have these chapters.] What is the current conversion premium for a convertible bond where...
The price of an interest rate cap is determined by:
The price of an interest rate cap is determined by: I. The period to which the cap relates II. Volatility of the underlying interest rate III. The exercise or the strike rate IV. The risk free rateA . I, II, III and IVB . I, II and IIIC . II,...
Which of the following markets are characterized by the presence of a market maker always making two-way prices?
Which of the following markets are characterized by the presence of a market maker always making two-way prices?A . ExchangesB . OTC marketsC . ECNsD . Dark poolsView AnswerAnswer: A Explanation: Over the counter and electronic communication networks match buyers and sellers. However, there is no market making function, ie,...
What is the value of the swap to the investor two years hence, immediately after the net interest payments are exchanged?
An investor enters into a 4 year interest rate swap with a bank, agreeing to pay a fixed rate of 4% on a notional of $100m in return for receiving LIBOR. What is the value of the swap to the investor two years hence, immediately after the net interest payments...
The yield-to-maturity on a 10 year coupon bearing bond
The yield-to-maturity on a 10 year coupon bearing bondA . 1, 2, 3B . 2, 1, 3C . 1, 3, 2D . 3, 2, 1View AnswerAnswer: B Explanation: This question highlights the difference between zero rates, yield-to-maturity and forward rates. Forward rates are from one point in time to another,...
The quote for which of the following methods of physical delivery of a futures contract would be the cheapest?
The quote for which of the following methods of physical delivery of a futures contract would be the cheapest?A . Free on boardB . Free alongside shipC . In storeD . Cost, insurance and freightView AnswerAnswer: C Explanation: 'In store' delivery is for delivery in a standardized location, and the...
