Quantitative Finance Practice Questions
Course Introduction
Quantitative Finance is a specialized course that explores the application of mathematical models and computational techniques in finance. Students learn to analyze financial markets, value complex securities, manage risk, and construct investment strategies using tools such as probability theory, statistics, stochastic calculus, and numerical methods. By combining financial theory with programming skills, this course prepares students to solve real-world problems in areas like asset pricing, derivatives, portfolio management, and algorithmic trading, making it essential for careers in investment banking, asset management, and financial engineering.
Recommended Textbook
Introduction to Derivatives and Risk Management 9th Edition by Don M. Chance
Available Study Resources on Quizplus
16 Chapters
945 Verified Questions
945 Flashcards
Source URL: https://quizplus.com/study-set/3840
Page 2
Chapter 1: Introduction
Available Study Resources on Quizplus for this Chatper
40 Verified Questions
40 Flashcards
Source URL: https://quizplus.com/quiz/76573
Sample Questions
Q1) Which of the following statements is not true about the law of one price
A) investors prefer more wealth to less
B) investments that offer the same return in all states must pay the risk-free rate
C) if two investment opportunities offer equivalent outcomes, they must have the same price
D) investors are risk neutral
E) none of the above
Answer: D
Q2) Which of the following markets is/are said to provide price discovery?
A) futures
B) forwards
C) options
D) a and b
E) b and c
Answer: D
Q3) A risk premium is the additional return investors expect for assuming risk.
A)True
B)False
Answer: True
To view all questions and flashcards with answers, click on the resource link above.
Page 3
Chapter 2: Structure of Options Markets
Available Study Resources on Quizplus for this Chatper
65 Verified Questions
65 Flashcards
Source URL: https://quizplus.com/quiz/76574
Sample Questions
Q1) Exercise limits are restrictions on the number of options that can be exercised by an investor in a given day or series of days.
A)True
B)False
Answer: True
Q2) The option price is also referred to as the
A) strike
B) spread
C) premium
D) fee
E) none of the above
Answer: C
Q3) Exchange-listed options expire on the Saturday following the third Friday of the month.
A)True
B)False
Answer: True
To view all questions and flashcards with answers, click on the resource link above.
Page 4
Chapter 3: Principles of Option Pricing
Available Study Resources on Quizplus for this Chatper
60 Verified Questions
60 Flashcards
Source URL: https://quizplus.com/quiz/76575
Sample Questions
Q1) At expiration, the value of a European call is S<sub>T</sub> - X.
A)True
B)False
Answer: False
Q2) What is the time value of the January 115 call?
A) 5.30
B) 0.00
C) 3.50
D) 1.70
E) none of the above
Answer: A
Q3) The time value of an option is also referred to as the
A) synthetic value
B) strike value
C) speculative value
D) parity value
E) none of the above
Answer: C
To view all questions and flashcards with answers, click on the resource link above. Page 5
Chapter 4: Option Pricing Models: The Binomial Model
Available Study Resources on Quizplus for this Chatper
60 Verified Questions
60 Flashcards
Source URL: https://quizplus.com/quiz/76576
Sample Questions
Q1) The values of u and d are which of the following?
A) the return on the stock if it goes up and down, respectively
B) the inverse of the ratio of the up and down probabilities, respectively, and the risk-free rate
C) the normal probabilities of up and down movements, respectively
D) one plus the return on the stock if it goes up and down, respectively
E) none of the above
Q2) The single period binomial hedge ratio for stock call options could be computed by equating the two future cash flows -- from a portfolio of long h shares of stock and short one call -- and solve for the number of underlying stocks to hold.
A)True
B)False
Q3) If the number of binomial periods is increased and u, d and r are not adjusted, the value of a European call will increase.
A)True
B)False
Q4) In a recombining binomial model with n periods, the number of outcomes is n + 1.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 6
Chapter 5: Option Pricing Models: The
Black-Scholes-Merton Model
Available Study Resources on Quizplus for this Chatper
60 Verified Questions
60 Flashcards
Source URL: https://quizplus.com/quiz/76577
Sample Questions
Q1) The standard normal random variable used in the calculation of cumulative normal probabilities within the Black-Scholes-Merton option pricing model is
A) the lognormal distribution
B) the d1 and d2 statistic
C) the z statistic
D) the f distribution
E) none of the above
Q2) In the Black-Scholes-Merton model, stock prices are assumed to behave randomly. A)True
B)False
Q3) The relationship between the option price and the exercise price is called A) the gamma
B) the vega
C) the omega
D) the zeta
E) none of the above
Q4) The option's rate of time value decay is represented by its theta. A)True
B)False
To view all questions and flashcards with answers, click on the resource link above.
Chapter 6: Basic Option Strategies
Available Study Resources on Quizplus for this Chatper
60 Verified Questions
60 Flashcards
Source URL: https://quizplus.com/quiz/76578
Sample Questions
Q1) A covered call with a higher exercise price has a higher breakeven.
A)True
B)False
Q2) The holder of a protective put has the equivalent of an insurance policy on the stock.
A)True
B)False
Q3) What is the disadvantage of a strategy of rolling over a covered call to avoid exercise?
A) the call premium is essentially thrown away
B) transaction costs tend to be high
C) the stock will incur losses
D) the call is more expensive when rolled over
E) none of the above
Q4) Given two bearish investors, the more risk averse investor would tend to select a put with a higher exercise price.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above.
8
Chapter 7: Advanced Option Strategies
Available Study Resources on Quizplus for this Chatper
60 Verified Questions
60 Flashcards
Source URL: https://quizplus.com/quiz/76579
Sample Questions
Q1) The delta of a straddle would be the call delta plus the put delta.
A)True
B)False
Q2) Which of the following transactions can have an unlimited loss?
A) long straddle
B) calendar spread
C) butterfly spread
D) reverse box spread
E) none of the above
Q3) Suppose the investor adds a call to the long straddle, a transaction known as a strap. What will this do to the breakeven stock prices?
A) lower both the upside and downside breakevens
B) raise both the upside and downside breakevens
C) raise the upside and lower the downside breakevens
D) lower the upside and raise the downside breakevens
E) none of the above
Q4) In a calendar spread the time value of the nearby option will decay more rapidly.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 9
Chapter 8: Structure of Forward and Futures Markets
Available Study Resources on Quizplus for this Chatper
61 Verified Questions
61 Flashcards
Source URL: https://quizplus.com/quiz/76580
Sample Questions
Q1) Options on futures contracts expire after the underlying futures contract expires.
A)True
B)False
Q2) Trading as both a broker and a dealer is called
A) dual trading
B) spreading
C) scalping
D) arbitraging
E) none of the above
Q3) Where did the U.S. futures market originate?
A) Chicago
B) Kansas
C) New York
D) Minneapolis
E) none of the above
Q4) Less than half of futures contracts launched in the United States are successful.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above.
Page 10
Chapter 9: Principles of Pricing Forwards, Futures and Options on Futures
Available Study Resources on Quizplus for this Chatper
60 Verified Questions
60 Flashcards
Source URL: https://quizplus.com/quiz/76581
Sample Questions
Q1) The cost of carry consists of all the following except
A) the risk-free rate
B) the cost of storage
C) insurance on the asset
D) the risk premium
E) none of the above
Q2) Determine the value of a European foreign currency put if the call is at $0.05, the spot rate is $0.5702, the exercise price is $0.59, the domestic interest rate is 5.75 percent, the foreign interest rate is 4.95 percent and the options expire in 45 days. (The interest rates are continuously compounded.)
A) $0.069
B) $0.031
C) $0.050
D) $0.517
E) none of the above
Q3) A synthetic put option on futures could be constructed by buying a call option on futures and selling the futures.
A)True
B)False
11
To view all questions and flashcards with answers, click on the resource link above.
Chapter 10: Futures Arbitrage Strategies
Available Study Resources on Quizplus for this Chatper
59 Verified Questions
59 Flashcards
Source URL: https://quizplus.com/quiz/76582
Sample Questions
Q1) The end-of-the-month option is
A) the right to exercise an option on the last day of the month
B) an option expiring on the last day of the month
C) the right to deliver during the last seven business days of the month
D) an option that trades only at the end of the month
E) none of the above
Q2) Suppose you observe the spot euro at $1.38/ and the three month euro futures at $1.379/ . Based on carry arbitrage, you conclude
A) this futures market is inefficient because the futures price is below the spot price
B) this futures market is indicating that the spot price is expected to fall
C) the spot price is too high relative to the observed futures price
D) the risk-free rate in Europe is higher than the risk-free rate in the U. S.
E) none of the above
Q3) Much of the volume of stock transactions in program trading occurs through the New York Stock Exchange's DOT system.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above.
Page 12
Chapter 11: Forward and Futures Hedging, Spread, and Target Strategies
Available Study Resources on Quizplus for this Chatper
60 Verified Questions
60 Flashcards
Source URL: https://quizplus.com/quiz/76583
Sample Questions
Q1) Based on the price sensitivity hedge ratio, if the yield beta increases (assumed to be positive), then the optimal number of futures contracts increases. Assume the durations are positive.
A)True
B)False
Q2) A firm that expects to borrow in the future would use a short hedge to protect against interest rate changes.
A)True
B)False
Q3) In which of the following situations would you use a short hedge?
A) the planned purchase of a stock
B) the planned purchase of commercial paper
C) the planned issuance of bonds
D) the planned repurchase of stock to cover a short position
E) none of the above
Q4) When the target duration is set at zero, the correct number of futures contracts to use is the same as is obtained from the price sensitivity hedge ratio.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 13
Chapter 12: Swaps
Available Study Resources on Quizplus for this Chatper
60 Verified Questions
60 Flashcards
Source URL: https://quizplus.com/quiz/76584
Sample Questions
Q1) For a currency swap with $10 million notional amount, the notional amount in British pounds if the exchange rate is $1.55 is (approximately)
A) 11.55 million
B) 15.5 million
C) 10 million
D) 6.45 million
E) none of the above
Q2) Swap payments typically involve adjusting for the fraction of the year in some fashion. This adjustment is known as
A) the compounding convention
B) the accrual period
C) the fraction convention
D) the money market convention
E) the payment period
Q3) The value of a floating-rate bond is par on each interest payment date.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above.
14
Chapter 13: Interest Rate Forwards and Options
Available Study Resources on Quizplus for this Chatper
60 Verified Questions
60 Flashcards
Source URL: https://quizplus.com/quiz/76585
Sample Questions
Q1) Which of the following is not required to determine a swaption payoff at expiration?
A) the exercise rate
B) the term structure of zero coupon rates at the swaption expiration
C) the maturity of the underlying swap
D) the yield on a bond of equivalent maturity as the swap
E) none of the above
Q2) FRAs, caps and floors are guaranteed against default.
A)True
B)False
Q3) An FRA in which the rate is not set according to rates in the market is called
A) a short FRA
B) a long FRA
C) an off-market FRA
D) a hedged FRA
E) an FRA spread
Q4) A short FRA would be appropriate for a party anticipating an increase in interest rates.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 15
Chapter 14: Advanced Derivatives and Strategies
Available Study Resources on Quizplus for this Chatper
60 Verified Questions
60 Flashcards
Source URL: https://quizplus.com/quiz/76586
Sample Questions
Q1) When pursuing portfolio insurance of a stock position, the minimum value of the portfolio is equal to
A) zero
B) strike price times the number of shares of stocks and puts held
C) strike price divided by the number of shares of stocks and puts held
D) stock price times the number of shares of stocks held
E) strike price times the initial value of the portfolio divided by the stock price minus the put price
Q2) Dynamic hedging can be performed by using stock and risk-free debt to achieve portfolio insurance by setting the delta of the stock-debt combination to the delta of a combination of stock and puts.
A)True
B)False
Q3) The upside capture measure is always less than one hundred percent.
A)True
B)False
Q4) Barrier options either begin or end when the stock hits a certain price.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 16
Chapter 15: Financial Risk Management Techniques and Appplications
Available Study Resources on Quizplus for this Chatper
60 Verified Questions
60 Flashcards
Source URL: https://quizplus.com/quiz/76587
Sample Questions
Q1) Earnings at Risk is a better risk measure for a derivatives dealer than is Value at Risk.
A)True
B)False
Q2) Which of the following are not methods of determining the VAR?
A) simulation method
B) historical method
C) estimation method
D) analytical method
E) none of the above
Q3) Find the number of Eurodollar futures each having a delta of -$25 that would delta-hedge a portfolio of a long position in swaps with a delta of $5,000 and a short position in a put option with a delta of -$2,300.
A) long 292 contracts
B) short 108 contracts
C) short 292 contracts
D) long 200 contracts
E) long 108 contracts
To view all questions and flashcards with answers, click on the resource link above.
Page 17
Chapter 16: Managing Risk in an Organization
Available Study Resources on Quizplus for this Chatper
60 Verified Questions
60 Flashcards
Source URL: https://quizplus.com/quiz/76588
Sample Questions
Q1) SEC disclosure requirements force companies to reveal how they manage all risks.
A)True
B)False
Q2) Senior management should be involved in the setting of policies and procedures of a firm's risk management operations.
A)True
B)False
Q3) Which of the following methods is not acceptable for disclosure under the SEC's rules?
A) the CEO's letter to the shareholders
B) tabular information
C) sensitivity analysis
D) VAR
E) none of the above
Q4) Which of the following activities does senior management not do?
A) ensure that personnel are qualified
B) ensure that controls are in place
C) execute hedge transactions
D) establish policies
E) define roles and responsibilities
To view all questions and flashcards with answers, click on the resource link above. Page 18