Reading 73: Option Markets and Contracts - LOS e, (Part 1

答案和详解如下：

1.Which of the following descriptions of how option payoffs are determined is most accurate?

A)   The long position in an interest rate call option receives cash at expiration equal to Max[0, (reference rate-strike rate)] x notional principal amount.

B)   The payoff on a stock index option is the difference between the index level at expiration and the exercise price.

C)   An equity call option holder receives cash in the amount by which the exercise price is greater than the strike price.

D)   Payoffs on futures options can be determined without knowing the spot price of the underlying commodity.

The correct answer was D)

When the holder exercises a futures option, he receives an underlying futures position. The cash payoff is the value the holder gains when that position is marked to market. Thus, the payoff is the difference between the exercise price and the futures contract price. Although it certainly influences the futures price, the spot price of the underlying commodity does not enter into the calculation of the payoff on the option.

The long position in an interest rate call option receives cash if the reference rate is greater than the strike rate, but does not receive it at expiration. The term of the reference rate (for example, 90-day LIBOR) determines the length of time after expiration when the cash changes hands. Options that pay at expiration pay the present value of the amount described. Determining the payoff on a stock index option requires the index level, the exercise price, and the contract multiplier. The strike price is another name for the exercise price.

2.The payoff of a call option on a stock at expiration is equal to:

A)   the minimum of zero and the exercise price minus the stock price.

B)   the maximum of zero and the stock price minus the exercise price.

C)   the maximum of zero and the exercise price minus the stock price.

D)   the minimum of zero and the stock price minus the exercise price.

The correct answer was B)    

The payoff on a call option on a stock is Max (0, S – X).

3.An important difference between interest rate options and bond options is that:

A)   bond options have positive payoffs when rates increase, interest-rate options when rates decrease.

B)   the payoffs on interest-rate options are not made at option expiration.

C)   interest-rate options have a face amount.

D)   bond options must account for coupon payments.

The correct answer was B)

The payoff on an interest-rate option is made after expiration by the period of the reference interest rate, e.g. 90-day LIBOR or 180-day LIBOR. Bond option values go down when interest rates increase; interest rate option values go up when the underlying rate increases.

4.The value of an interest-rate call option at expiration is zero or the:

A)   present value of, the market rate minus the exercise rate, adjusted for the period of the rate, times the principal amount.

B)   market rate minus the exercise rate, adjusted for the period of the rate, times the principal amount.

C)   present value of, the exercise rate minus the market rate, adjusted for the period of the rate, times the principal amount.

D)   exercise rate minus the market rate, adjusted for the period of the rate, times the principal amount.

The correct answer was A)

An interest rate call pays zero or the market rate at expiration minus the exercise rate. Since the payment is made at a date after expiration by the period of the reference rate, the value at expiration is the present value of this difference times the principal value.

5.The owner, of an interest-rate cap will:

A)   receive a payment if the market rate is less than the cap rate.

B)   be required to make a payment if the market rate exceeds the cap rate.

C)   receive a payment if the market rate exceeds the cap rate.

D)   be required to make a payment if the market rate is less than the cap rate.

The correct answer was C)

An interest-rate cap will pay its owner the maximum of zero or the market rate minus the cap rate, times the notional principal.

6.Buying an interest-rate cap and selling an interest-rate floor is equivalent to:

A)   buying a series of interest-rate calls and selling a series of interest-rate puts.

B)   buying a series of interest-rate puts and selling a series of interest rate calls.

C)   buying a series of interest-rate puts and calls.

D)   selling a series of interest-rate puts and calls

The correct answer was A)

A cap is equivalent to a series of (long) interest-rate calls and selling a floor is equivalent to selling a series of interest-rate puts.

7.An investor who bought a floating-rate security and wishes to establish a minimum periodic cash flow on his investment could:

A)   sell an interest-rate cap.

B)   buy an interest-rate cap.

C)   sell an interest-rate floor.

D)   buy an interest-rate floor.

The correct answer was D)

The buyer of a floor will receive a payment when the floating rate is below the floor rate, effectively establishing a minimum rate on the floating rate security.