Online Access Free 8006 Practice Test

The gamma in a commodity futures contract is:

• A.parabolic
• B.always negative
• C.dependent upon the convexity
• D.zero

If the current stock price is $100, the risk-free rate of interest is 10% per year, and the value of a put option expiring in 1 year on this stock at a strike price of $110 is $5. What is the value of the call option with the same strike?

• A.$4.55
• B.$10
• C.$5
• D.$15

For a portfolio of equally weighted uncorrelated assets, which of the following is FALSE:

• A.Returns can be averaged to get portfolio return
• B.Portfolio risk is less than if the assets were positively correlated
• C.Standard deviations can be averaged together to obtain portfolio volatility
• D.Asset variances can be averaged together to obtain portfolio variance

[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.] A long call position in an asset-or-nothing option has the same payoff as:

• A.a long cash-or-nothing call and a long vanilla call
• B.a short cash-or-nothing call and a short vanilla call
• C.a contingent premium option
• D.two long cash-or-nothing calls combined with a put at the same strike

When considering an appropriate mix of debt and equity, Chief Financial Officers generally consider:
I. Tax advantage of debt
II. Financial distress costs
III. Agency costs of equity
IV. Retaining financial flexibility

• A.I, II and IV
• B.I and II
• C.I, II, III and IV
• D.I, III and IV