1.    What is the payoff of a long call option with an exercise price of $15.50, if the underlying share price is $16.50, at the expiry date of the option? The option was purchased for $1.20.(1)

2.    Given the following data on a European Call calculate the value of a European Put option (correct to two decimal places) with the same exercise price and maturity as the Call: (2)

c = 4.15

Rf = 0.05 continuous pa

T = six months

X = 17

S = 18

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3.      In Australia the SPI future has a value of $25 per point of the index. If you go short the SPI at 4500 and the price closes for the day at 4510 then your account balance would (0.5)

4.       A currency forward contract is a contract that set the exchange rate in advance. It is usually written between a firm and a bank and it fixes the currency exchange rate for a transaction that will occur at a future date.

In Australia most hedging of exchange risk is conducted using these contracts. (0.5)

[removed] True

[removed] False

5.    Which of the following enables an arbitrage profit to be made (excluding transaction costs) from a put option if the market price of the underlying share is $5.50, the price of the put is $0.50, and the exercise price is $3.80? (0.5)

6.       Identify the profit/loss on this transaction:
You buy a call option on a share at an exercise price of $34 for a premium of $1.79 per share. The price of the share goes to $38. .(1)

This is the payoff for the taker of a put . (1)

[removed] True

[removed] False

7.       Which of the following statements about spot prices (S) and future prices (F) is correct?(0.5)

8.    Identify the profit/loss on this transaction (correct to two decimal places):
You buy a put on a share at an exercise price of $33 for a premium of $2.2. The price of the share goes to $28 at maturity. (1.5)

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9.       You are worried about the price of oil decreasing, as you are an oil supplier, and decide to hedge your risk by using futures contracts (you need 10 contracts, each for 1000 barrels). Based on the following information, what is your  gain/loss on futures trading? And what is the effective price of oil per barrel from your hedging strategy?(0.5)

·         Now it is May and the current market price is $125 a barrel

·         in May the October futures price is $120 a barrel

·         in September you need to close out from your futures contracts; the current market price for oil is $113 a barrel and the October futures price is $112 a barrel.

10.  Identify the profit/loss on this transaction:
You write two puts on a share at an exercise price of $33 for a premium of $1.63 each. The price of the share goes to $38 at maturity.(1)

11.    

Which of the following best describes this graph (1)

12.   It is January. Lan-wool is a manufacturer of woolen jumpers. Mary, the manager of Lan-wool, will need to purchase 7,500kg of wool in September. Mary is worried the market price of wool may increase in the future.(0.5)

What sort of transactions should Mary undertake in order to hedge her risk using futures?

13.  The writer of an option is the (0.5)

14.Identify the profit/loss on this transaction:
You buy two call options on a share at an exercise price of $34 for a premium of $1.79 per share.You write a put on a share at an exercise price of $33 for a premium of $1.63.
The price of the share goes to $40. All options have the same maturity date and are on the same underlying share. (1)

15.   If the share price at the expiry of a call option is less than the exercise price, the call is worth: (0.5)

16.   For a long put option (bought) with an exercise price of $9.50, the maximum payoff is: (0.5)

17.  Which of the following items are correct with respect to Futures? There may be more than one correct answer.(0.5)

Futures and Forwards, Options and Warrants