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
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
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
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 option. The breakeven stock price below which the trader makes a profit is
A) $25
B) $28
C) $26
D) $20
5) Which of the following is approximately true when size is measured in terms of the underlying principal amounts or value of the underlying assets?
A) The exchange-traded market is twice as big as the over-the-counter market
B) The over-the-counter market is twice as big as the exchange-traded market
C) The exchange-traded market is ten times as big as the over-the-counter market
D) The over-the-counter market is ten times as big as the exchange-traded market
6) Which of the following best describes the term “spot price”?
A) The price for immediate delivery
B) The price for delivery at a future time
C) The price of an asset that has been damaged
D) The price of renting an asset
