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Hull_OFOD9e_MultipleChoice_Questions_and_Answers_Ch05.pdf
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Hull: Options, Futures, and Other Derivatives, Ninth EditionChapter 5: Determination of Forward and Futures Prices
Multiple Choice Test Bank: Questions with Answers
1. Which of the following is a consumption asset?
A. The S&P 500 index
B. The Canadian dollar
C. Copper
D. IBM stock
Answer: C
A, B, and D are investment assets (held by at least some investors purely for investment
purposes). C is a consumption asset.
2. An investor shorts 100 shares when the share price is $50 and closes out the position six months
later when the share price is $43. The shares pay a dividend of $3 per share during the six
months. How much does the investor gain?
A. $1,000
B. $400
C. $700
D. $300
Answer: B
The investor gains $7 per share because he or she sells at $50 and buys at $43. However, the
investor has to pay the $3 per share dividend. The net profit is therefore 7−3 or $4 per share.
100 shares are involved. The total gain is therefore $400.
3. The spot price of an investment asset that provides no income is $30 and the risk-free rate for all
maturities (with continuous compounding) is 10%. What is the three-year forward price?
A. $40.50
B. $22.22
C. $33.00
D. $33.16
Answer: A
The 3-year forward price is the spot price grossed up for 3 years at the risk-free rate. It is 30e0.1×3
=$40.50.
4. The spot price of an investment asset is $30 and the risk-free rate for all maturities is 10% with
continuous compounding. The asset provides an income of $2 at the end of the first year and at
the end of the second year. What is the three-year forward price?
A. $19.67
/
, Hull: Options, Futures, and Other Derivatives, Ninth Edition
Chapter 5: Determination of Forward and Futures Prices
Multiple Choice Test Bank: Questions with Answers
B. $35.84
C. $45.15
/
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