Question 50 of 50

Given zero rates z3 = 2.4485% and z4 = 2.6690% (annual compounding), calculate the implied one-year forward rate starting in three years, IFR3,1. Use the formula (1 + z3)^3 * (1 + IFR3,1) = (1 + z4)^4.

A bank enters a one-month FRA on notional AUD 150,000,000 with IFR3m,1m = 0.50% at inception. At settlement the observed 1-month MRR is 0.35%. What is the end-of-period net payment before discounting?

For a non-dividend-paying stock with S0 = EUR 125 and a single dividend of EUR 2.50 at maturity, and risk-free rate r = 1% for one year, which futures price f0(T) prevents arbitrage?

A one-period interest-rate futures contract of notional 1,000,000 on a 3-month deposit has MRR 2.21% for the quarter. What is the contract BPV (basis point value) for a 1 bp move?

Which scenario will cause futures prices to be higher than forward prices for otherwise identical contracts (same underlying, maturity)?

A trader observes one-year and two-year zero-coupon yields z1 = 4% and z2 = 5% (annual). What implied one-year forward rate one year from now IFR1,1 solves (1 + z1)*(1+IFR1,1) = (1 + z2)^2 ?

Baywhite borrows at variable 1-month MRR and lends fixed for 60 days. To hedge exposure to one-month MRR rising over the next 30 days, which FRA position should Baywhite take?

Compute the par swap rate s3 for a 3-year annual swap given zero rates z1 = 2.3960%, z2 = 3.4197%, z3 = 4.0005% and implied forward rates IFR0,1 = 2.3960%, IFR1,1 = 4.4537%, IFR2,1 = 5.1719%. Use the par swap rate formula summing PV of IFRs = s3 * sum(discount factors).

Esterr Inc. has a CAD250m floating-rate loan: 3-month MRR + 150 bps. It enters a CAD250m quarterly swap paying fixed 2.05% receiving 3-month MRR. If 3-month MRR sets at 3.75% in a quarter, what is the net swap payment that quarter (fixed payer perspective) per annum-equivalent and the resulting net interest expense for Esterr that quarter?

If an interest-rate futures contract price is 98.25 using convention f = 100 - 100*MRR for a 3-month MRR starting in 3 months (3m,3m), what is the implied 3-month market reference rate (MRR3m,3m)?

A futures contract buyer loses USD 500 when the futures price falls USD 5 on a 100-ounce gold contract. If the position is 1 contract (100 oz), what is the realized MTM loss per ounce and total loss?

A trader creates a hedged portfolio by selling one call and buying h units of the underlying. Given call payoffs cu = 10 and cd = 0, underlying outcomes Su = 110 and Sd = 60, what hedge ratio h makes the portfolio risk-free?

Using the hedged portfolio with h = 0.20, S0 = 80, and the portfolio certain payoff V1 = 12, and annual risk-free rate r = 5%, what is the no-arbitrage call price c0?

Compute the risk-neutral probability pi for the one-period model with Ru = 1.375, Rd = 0.75, and r = 5% (annual).

Using risk-neutral pricing with pi = 0.48, cu = 10 and cd = 0 and r = 5%, compute c0 as discounted risk-neutral expected payoff.

Which of the following best describes convexity bias between interest-rate futures and FRAs?

A futures exchange requires initial margin 4,950 and maintenance margin 4,500 on a gold contract. If the futures price drop causes a realized loss of USD 500, what margin action occurs?

Which of the following best describes why swaps are preferred by issuers and investors relative to a sequence of FRAs?

At swap inception the par swap rate is set so the swap has zero value. If the forward curve later shifts upward uniformly, what is the MTM effect for a fixed-rate payer who pays sN and receives floating?

Calculate the periodic settlement amount (for a single interest period) for a fixed-rate payer on a swap with notional EUR100m, fixed rate 1.12% and current MRR = 0.25% for a half-year period.

An investor can replicate a long underlying position using put-call parity. Which portfolio equals a long underlying S0 under put-call parity?

If S0 + p0 > c0 + PV(X) in the market for European options with same X and T, what arbitrage action should a trader take at t = 0 to earn riskless profit?

Put-call forward parity replaces S0 with F0(T) discounted. Which equation expresses put-call forward parity?

A fiduciary call (long call + PV(X) bond) and a protective put (long underlying + long put) have identical payoffs at maturity. What immediate no-arbitrage relation follows at t = 0?

A covered call position equals which of these using put-call parity algebraically (S0 - c0)?

A put option with X equal to forward price F0(T) has payoff at maturity identical to which of the following in the case X > ST?

If futures prices are positively correlated with interest rates over the contract life and interest rates are rising, which contract is more attractive to a long position holder (long futures vs long forward)?

A dealer clears OTC forwards via a CCP and must post margin similarly to futures. How does this affect the difference in cash-flow impact between ETD futures and OTC forwards?

Compute the present value (PV) of a FRA net payment of USD 25 at maturity using discounting by MRR = 2.22% for a 3-month period (quarter), i.e., PV = 25/(1 + 0.0222/4).

An investor wants to synthetically create a long risk-free bond (face value X) using forward and option positions. Which combination achieves PV(X) at T under put-call forward parity?

Given zero rates and implied forwards used to price a swap, which factor will increase the par swap rate s_N all else equal?

An investor sells a call on a stock they already own (covered call). Using parity, what risk exposure remains versus a naked stock holder?

A one-period binomial model assumes underlying can go up to Su or down to Sd. Which inputs are sufficient to price a European option in the one-period binomial model (ignoring dividends)?

Which of the following statements about risk-neutral probabilities used in option pricing is correct?

Which of the following increases the value of both a European call and a European put on the same underlying (all else equal)?

A European call option lower bound at time t is Max(0, St - PV(X)). Which intuition explains this lower bound?

A banker faces paying floating commercial paper in future. Which interest-rate derivative is most natural for hedging this liability?

Which statement correctly describes how central clearing affects dealer margin demands on clients for OTC forwards?

If a long receive-fixed swap position increases portfolio duration, which position in swap terms achieves that?

An exchange-traded copper contract is 25,000 pounds. Initial margin 10,000, maintenance margin 6,000. If margin account drops from 10,000 to 6,000 due to losses, what action is required?

Which of the following statements about FRA settlement timing is correct?

An exchange quotes a 3-month interest futures price of 98.75 (implying yield 1.25%). If a trader sells futures at 98.75 and at settlement futures is 97.75 (yield 2.25%), and BPV per contract for notional 50,000,000 is 416.67, what is trader cumulative gain for 100 bps move?

Which of the following correctly explains why option replication requires rebalancing over time but forward replication does not?

A dealer quotes a swap where the fixed-rate payer pays 2.05% and receives floating. If the term forward curve is upward sloping and unchanged with time passing, what happens to swap MTM for the fixed-rate payer after making early period payments?

Which of the following is true for interest-rate futures quoting convention?

A portfolio manager wants to gain if rates fall. Which swap position achieves that?

If a FRA fixed-rate receiver (i.e., receives fixed, pays floating) is economically equivalent to which interest-rate futures position, what is it?

Which combination replicates a swapped party who pays fixed and receives floating on a swap (pay-fixed)?

If a firm's asset value V_T at debt maturity is random, shareholders' payoff at T equals max(0, V_T - D). Which option-like payoff does this correspond to?