# Test bank fundamentals of futures and options markets 7e by hull chapter 22

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Test Bank: Chapter 22 Exotic Options and Other Nonstandard Products An Asian option is a term used to describe (Circle one): (a) An option where the payoff depends on whether a barrier is hit (b) An option where the payoff depends on the average value of a variable over a period of time (c) An option that trades on an exchange in the Far East (d) An option with a nonstandard payoff As the barrier is observed more frequently, a knock out option becomes (Circle one) (a) More valuable (b) Less valuable (c) There is no effect on value (d) May become more valuable or less valuable There are two types of regular options (calls and puts) How many types of compound options are there (Circle one) (a) Two (b) Four (c) Six (d) Eight In a shout call option the strike price is \$30 The holder shouts when the asset price is \$40 What is the payoff from the option if the final asset price is \$35? (Circle one) (a) \$0 (b) \$5 (c) \$10 (d) \$15 The probability of a regular put option closing in the money is, with our usual notation (Circle one) (a) N(d1) (b) N(d2) (c) N(−d1) (d) N(−d2) A floating lookback put option pays off (Circle one) (a) The amount by which the final stock price exceeds the minimum stock price (b) The amount by which the maximum stock price exceeds the final stock price (c) The amount by which the strike price exceeds the minimum stock price (d) The amount by which the maximum stock price exceeds the strike price A PO is a “principal only” MBS and an IO is an “interest only” MBS As prepayments increase the following happens (Circle one) (a) Both the PO and IO become more valuable (b) The PO becomes more valuable and the IO becomes less valuable\ (c) The PO becomes less valuable and the IO becomes more valuable (d) Both the PO and IO become less valuable In a LIBOR-in-arrears swap the following is true (Circle one) (a) The floating payment made on a date is the LIBOR rate on the previous payment date (b) The floating payment on a date is the LIBOR rate two payment dates ago (c) The floating payment on a date is the LIBOR rate on that date (d) The floating payment on a date is the LIBOR rate on that date only when it is higher than the LIBOR rate on the previous payment date Which of the following would be referred to as an equity swap (Circle one) (a) An exchange of the return from an equity index for a fixed rate of interest (b) An exchange of a long position in one stock for a long position in another stock (c) An exchange of a short position in one stock for a short position in another stock (d) None of the above 10 A five-year interest rate swap that can be canceled at the two year point is (Circle one) (a) The difference between two plain vanilla interest rate swaps (b) The difference between a a plain vanilla interest rate swap and a forward start swap (c) A regular interest rate swap plus a European swap option (d) A regular interest rate swap plus a Bermudan swap option ... payment date Which of the following would be referred to as an equity swap (Circle one) (a) An exchange of the return from an equity index for a fixed rate of interest (b) An exchange of a long position... only” MBS and an IO is an “interest only” MBS As prepayments increase the following happens (Circle one) (a) Both the PO and IO become more valuable (b) The PO becomes more valuable and the IO... valuable and the IO becomes less valuable (c) The PO becomes less valuable and the IO becomes more valuable (d) Both the PO and IO become less valuable In a LIBOR-in-arrears swap the following is
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