Question 1 [Multiple Choice: 45%]

Provide the correct answer to the following:

Which of the following is a Zero Sum Game? (A) Long Put Option and Long Call Option (B) Long Futures and Long Forward (C) Long Put Option and Short Put Option

(D) Short Futures and Short Forward

Answer: _______________

Which of the following is traded in Zero Supply (or Zero Net Supply) markets? (A) Futures on snowfall (B) Futures on earthquakes (C) Futures on stock market index

(D) All of the above

Answer: _______________

Which of the following satisfies Zero Initial Value? (A) Futures on gold (B) Futures on coffee (C) Futures on stock market index

(D) All of the above

Answer: _______________

The Futures Price of a futures contract is: (A) contracted now to transact later at the delivery date (B) contracted later at the delivery date (C) contracted now to transact immediately (D) All of the above Answer: _______________

Which of the following is True? (A) Futures are settled on a weekly basis (B) The largest loss of futures contract is one-year change in futures price (C) Forward has counterparty default risk (D) European options are traded in Europe only Answer: _______________

Questions 1 continued next page

The market is in Contango when: (A) Spot Price and Futures Price are unrelated (B) Spot Price is lower than Futures Price (C) Spot Price is higher than Futures Price (D) Spot Price is equal to Futures Price Answer: _______________

Assume that the underlying asset is an investment asset with no storage cost. The information of the stock price, maturity of the forward contract, and risk-free rate is provided below:

Based on the above information and the cost of carry model, which of the following is closest to the correct No-Arbitrage Forward Price (F0)?

(A) 129.99 (B) 110.77 (C) 0 (D) 9.60 Answer: _______________

Assume that the underlying asset is an investment asset with storage cost. The information of the stock price, storage cost, maturity of the forward contract, and risk- free rate is provided below:

Based on the above information and the cost of carry model with storage cost, which of the following is closest to the correct No-Arbitrage Forward Price (F0)?

(A) 129.99 (B) 156.93 (C) 184.16 (D) 75.83 Answer: _______________

Stock/Spot Price	S0	$120
Maturity date of Forward Contract (2 years)	T	2
Risk-free Rate	r	4%

Stock/Spot Price	S0	$120
Storage Cost ($)	U	$50
Maturity date of Forward Contract (2 years)	T	2
Risk-free Rate	r	4%