Exam 2 - Review Flashcards
If you sell a put option,
A. the maximum loss is unlimited.
B. the maximum profit is unlimited.
C. the maximum gain equals the premium.
D. the maximum gain equals the stock price minus the strike
price
C. the maximum gain equals the premium.
An investor buys 100 shares of stock at $25 and buys one APR $20 put @ $2. At expiration the stock is worth $19. This person’s total loss is _______________.
$ - 700
= 25-20-2 = -7
= -7 x 100
= -700
An investor buys 200 shares of stock at $22 and buys two DEC $20 puts @ $2. At expiration the stock is worth $19. This person’s total loss is: ________________.
$ -800
= 20-22-2 = -4
= -4 x 200 = -800
An investor sells one call with a strike price of 50 for $4 and sells one put with a strike price of 50 for $2. At expiration, the stock price is $44. The total net profit to this investor is: __________
$0.
= 4 + 2 + (50 - 44)
= 0
If stock is purchased at $39 and a $40 call is written for a premium of $1, the maximum possible gain per share is _________.
$2.
An investor buys one call with a strike price of $30 for $3 and sells one call with a strike price of $40 for $1. What is the maximum gain per share?
$8.
An investor buys one call with a strike price of $30 for $3 and sells one call with a strike price of $40 for $1. What is the net profit at expiration per share if the stock price is $35?
$3
= 35 - 30 - 3 + 1
= 3
An investor buys one call with a strike price of $30 for $3 and sells one call with a strike price of $40 for $1. What is the maximum loss on this trade?
$2.
An investor buys one call with a strike price of 50 for $4 and buys one put with a strike price of 50 for $3.50. At expiration, the stock price is $56.50. The total net profit to this investor is ___________.
$ -100
= 56.50 - 50 -(4 + 3.50)
= -1 x 100
= -100
Which of the following is most similar to buying a protective put?
A. writing a call B. buying a covered call C. buying a call. D. writing a put.
C. buying a call.
An investor buys 100 shares of stock at $24 and buys one APR 20 put @ $2. At expiration the stock is worth $24. This person’s total loss is ______________.
$200
An investor buys 100 shares of stock at $30 and sells one APR 35 call @ $2. At expiration the stock is worth 60. This person’s total gain is ______________.
$700
= (35- 30) + 2 = 7 x 100
= 700
Which of the following is most similar to selling a covered call?
A. writing a call B. buying a straddle. C. buying a put. D. writing a put
D. writing a put
Tenor refers to
A. the underlying currency behind a swap. B. the length of time associated with the swap agreement. C. the present value of the swap agreement. D. the face value of the swap.
B. the length of time associated with the swap agreement.
The interest rate swap floating rate is most commonly based on
LIBOR
An organization that simplifies entering into a swap is ___________.
ISDA
Concerning an interest rate swap, which of the following is most correct?
A. the fixed rate payer always remits a check. B. the floating rate payer always remits a check. C. one party remits a difference check. D. both parties always remit a check.
C. one party remits a difference check
In a currency swap:
A. Both parties exchange notional amounts at the end of the
swap.
B. Both parties exchange notional amounts at the beginning
of the swap.
C. Both A and B are correct.
D. Neither A nor B is correct.
C. Both A and B are correct.
A plain vanilla swap can be valued as
A. the combination of a fixed rate bond and an option
B. the combination of two fixed rate bonds
C. the combination of two floating rate bonds
D. the combination of a fixed rate bond and a floating rate
bond.
D. the combination of a fixed rate bond and a floating rate bond.
The fixed swap rate on a par interest rate swap is set such that
A. the sum of the cash flows on both legs is zero
B. the fixed rate cash flows exceed the floating rate cash
flows at present value.
C. the sum of the present value of the cash flows on both
legs is zero for either Counterparty.
D. the floating rate cash flows exceed the floating rate cash flows at present value
the sum of the present value of the cash flows on both legs is zero, for either conterparty.
If the interest rates increase, the value of a pay-fixed receive-floating swap:
A. Increases for the floating rate payer. B. Increases for the fixed rate receiver. C. Increases for the fixed rate payer. D. Decreases for the floating rate receiver
C. Increases for the fixed rate payer
Based on the following information, what is the annual par swap on a three period, semiannual-pay swap?
B0(180) = 0.9753 B0(360) = 0.9529 B0(540) = 0.8856
8.1314%
Ninety days later, the market has changed indicating the discount factors below. What is the value of the swap for the fixed rate payer assuming a $20,000,000 par amount? The initial floating rate was 5.25%. Use the fixed rate from the last question to calculate the fixed payment and round each leg to 4 decimal places to calculate the answer.
B(90)(180) = 0.9622 B(90)(360) = 0.9160 B(90)(540) = 0.8734
$44,000
Fixed
= (.040657)(0.9622 + 0.9160 + 0.8734) + 0.8734
= 0.9853
Float
= ((0.525/2)+1)(0.9622)
= 0.9875
= (0.9875 - 0.9853)(50,000,000)
= 44,000
A company has entered into a swap with a notional principal amount of $50 million. The company will receive floating based on 3-month LIBOR flat and pay fixed at a rate of 5.50%. Interest is paid semi-annually. Floating payments are based on 180/360 and fixed are based on 180/365. Current 3-month LIBOR is 5%. What is the net first payment (receipt) for the company (a payment is a negative number)?
$-106,164
Fixed
= 50,000,000(0.550)(180/365)
= 1,356,164.38
Float
= 50,000,000(.05)(180/360)
= 1,250,000
= 1,250,000 - 1,356,164
= - 106,164
A company has entered into a swap with a notional principal amount of $50 million. The company will pay floating at LIBOR + 1% and receive fixed at a rate of 6.80%. Interest is paid semi-annually. Floating payments are based on 180/360 and fixed are based on 180/365/ Current LIBOR is 5%. What is the net first payment (receipt) for the company (a payment is a negative number)?
$176,712
The right to receive the floating rate on a swap at a later date is referred to as a __________________.
payer swaption
A payer swaption will increase in value when __________________.
interest rates go up.
A European payer swaption expires in two years and is on a one year swap that will make quarterly payments. The swaption has an exercise rate of 6%. Based on the following discount rates at expiration, and a notional amount of $20 million, calculate the market value at expiration.
B0(90) = 0.9908 B0(180) = 0.9790 B0(270) = 0.9655 B0(360) = 0.9489
$0
Because the rates go down it is 0 (Max(FS - X, 0)).
Based on the following information, what is the annual par swap rate on a four period, semiannual-pay swap?
B0(180) = 0.9753 B0(360) = 0.9259 B0(540) = 0.8856 B0(720) = 0.8652
7.382%
= ((1 - 0.8652)/(0.9753 + 0.9259 + 0.8856 + 0.8652))
= 0.1348/3.6520
= 0.0369
= 0.0369(2)
= 0.07382 annual
Ninety days later the market has changed indicating the discount factors below. What is the value of the swap for the fixed rate receiver assuming a $20,000,000 par amount? The initial floating rate was 5.07%. Use the fixed rate from the previous problem to calculate the fixed payment and round each leg to 4 decimal places to calculate the answer).
B(90)(180) = 0.9622 B(90)(360) = 0.9160 B(90)(540) = 0.8734 B(90)(720) = 0.8655
$248,000
From a valuation standpoint, a swaption is like: ________________.
A. a combination of two bonds B. a combination of a bond and a futures contract C. an option on a zero coupon D. an option on a full coupon bond
D. an option on a full coupon bond.
Look at the swaption valuation slide for more information
If a swap is pried today, has a maturity in 4 years and teh floating rate is based in 90-day LIBOR, the initial floating rate will be set ______________.
A. in 90 days. B. today. C. in one year D. in four years
B. today
A forward delivery swap refers to a swap contract whereby:
A. the fixed rate is set at a later date.
B. the swap begins at a later date at the option of the
counterparty.
C. the swap begins at a later date.
D. the swap requires delivery of a LIBOR time deposit.
C. the swap begins at a later date.
The short-term municipal swap rate is called _______________.
A. LIBOR B. ISDA C. SIFMA D. REMIC
C. SIFMA
Under an equity swap, one counterparty pays a floating or fixed rate and the other counterparty pays (or receives):
A. the dividend yield on an equity or equity index B. the positive return on an equity of equity index. C. LIBOR D. the total return on an equity or equity index.
D. the total return on an equity or equity index.
