AAFM Financial Derivatives and Alternative Investments

Question 1

A call option gives the holder the right, but not the obligation, to do which of the following?

Accepted Answer

Buy the underlying asset at the strike price

Answer

Sell the underlying asset at the strike price

Answer

Receive a fixed dividend

Answer

Borrow at the risk-free rate

Question 2

In options pricing, the Black-Scholes model uses which five inputs to determine the theoretical value of a European option?

Accepted Answer

Stock price, strike price, risk-free rate, time to expiration, and volatility

Answer

Price, volume, dividend yield, beta, and maturity

Answer

Price, earnings, debt, cash flow, and growth rate

Answer

Market cap, beta, dividend, PE ratio, and yield

Question 3

A futures contract obligates both parties to transact an asset at a predetermined price on a specified future date, unlike which related instrument?

Accepted Answer

Options contract

Answer

Forward contract

Answer

Swap agreement

Answer

Swaption

Question 4

Which risk measure in options, delta, represents the sensitivity of an option's price to a change of what?

Accepted Answer

The underlying asset's price

Answer

Time to expiration

Answer

Implied volatility

Answer

The risk-free rate

Question 5

A hedge fund strategy that profits from pricing discrepancies between related securities, regardless of market direction, is classified as which type?

Accepted Answer

Market neutral/arbitrage

Answer

Long/short equity

Answer

Global macro

Answer

Managed futures

Question 6

Private equity buyout funds typically use which financial technique to amplify returns by using borrowed capital to finance acquisitions?

Accepted Answer

Leveraged buyout (LBO)

Answer

Short selling

Answer

Currency hedging

Answer

Mezzanine financing