Hull:Options,Futures,andOtherDerivatives,NinthEditionChapter18:FuturesOptionsMultipleChoiceTestBank:QuestionswithAnswers1.Whichofthefollowingisacquired(inadditiontoacashpayoff)whentheholderofaputfuturesexercises?A.AlongpositioninafuturescontractB.AshortpositioninafuturescontractC.AlongpositionintheunderlyingassetD.AshortpositionintheunderlyingassetAnswer:BTheholderoftheputacquiresashortfuturespositionwhichcanbeimmediatelyclosedoutifdesired.2.Whichofthefollowingisacquired(inadditiontoacashpayoff)whentheholderofacallfuturesexercises?A.AlongpositioninafuturescontractB.AshortpositioninafuturescontractC.AlongpositionintheunderlyingassetD.AshortpositionintheunderlyingassetAnswer:ATheholderofthecallacquiresalongfuturespositionwhichcanbeimmediatelyclosedoutifdesired.3.Therisk-freerateis5%andthedividendyieldontheS&P500indexis2%.Whichofthefollowingiscorrectwhenafuturesoptionontheindexisbeingvalued?A.ThefuturespriceoftheS&P500istreatedlikeastockpayingadividendyieldof5%.B.ThefuturespriceoftheS&P500istreatedlikeastockpayingadividendyieldof2%.C.ThefuturespriceoftheS&P500istreatedlikeastockpayingadividendyieldof3%.D.ThefuturespriceoftheS&P500istreatedlikeanon-dividend-payingstock.Answer:AWhenafuturesoptionisbeingvaluedthedividendyieldissetequaltothedomesticrisk-freerate.Inthiscasethedomesticrisk-freerateis5%.Aisthereforecorrect.4.WhichofthefollowingisNOTtrue?A.Black’smodelcanbeusedtovalueanAmerican-styleoptiononfuturesB.Black’smodelcanbeusedtovalueaEuropean-styleoptiononfuturesC.Black’smodelcanbeusedtovalueaEuropean-styleoptiononspotD.Black’smodeliswidelyusedbypractitionersAnswer:ABlack’smodelisusedforvaluingEuropeanoptions.Aisthereforeclearlyfalse.5.Whichofthefollowingistruewhenthefuturespriceexceedsthespotprice?A.CallsonfuturesshouldneverbeexercisedearlyB.PutonfuturesshouldneverbeexercisedearlyC.AcallonfuturesisalwaysworthatleastasmuchasthecorrespondingcallonspotD.AcallonspotisalwaysworthatleastasmuchasthecorrespondingcallonfuturesAnswer:CIfthefuturespriceisabovethespotp...
