Test Bank for Options, Futures, and Other Derivatives 11e 11th edition by John C. Hull.
ISBN-13: 9917
Full Chapters test bank included with Instant Download in PDF
1. Introduction
2. Futures markets and central counterparties
3. Hedging strategies using futures
4. Interest rates
5. Deter...
Hull: Options, Futures, and Other Derivatives, Eleventh Edition
Chapter 1: Introduction
Multiple Choice Test Bank: Questions with Answers
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.
Answer: B
A one-year forward contract is an obligation to buy or sell in one year’s time for a
predetermined price. By contrast, an option is the right to buy or sell.
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. A 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.
Answer: A
When an IBM call option is exercised, the option seller must buy shares in the market to sell to
the option buyer. IBM is not involved in any way. Answers B, C, and D are true.
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
Answer: A
When the stock price is $35, the two call options provide a payoff of 2 × (35 − 30) or $10. The
put option provides no payoff. The total cost of the options is 2 × 3 + 4 or $10. The stock price in
A, $35, is therefore the breakeven stock price above which the position is profitable because it is
the price for which the cost of the options equals the payoff.
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
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller Tutor247. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for $29.99. You're not tied to anything after your purchase.
