CMFAS Module 6A Set B

1) Which of the following statements about bull spreads is FALSE?

They may involve buying and selling calls with different strike prices.

They may involve buying and selling puts with different strike prices.

The expiry dates for the calls or puts being bought / sold are different.

None of the above.

2) In case of a debit bull spread: -

I. A call is sold and call is bought at a different strike price.
II. The strike price of the option being sold is greater than the strike price of the option
being bought.
III. It involves paying a premium for the spread.
IV. In case of an upward movement in the asset, the profit potential is unlimited.

I, II, III & IV

I, II & III

I, II & IV

II & IV

3) Which of the following statements about a credit bull spread is/are TRUE?
I. It involves buying and selling puts for an asset at different expiry dates.
II. The option being sold is at a lower strike price compared to the one being bought.
III. It creates a positive cash flow for the trader.
IV. Payoff from this spread is less than that from a debit call spread.

II & III

I only.

III & IV

I & IV
4) In case of a bear spread ____.

The option being sold is at a lower strike price compared to the one being bought.

The option being bought is at a lower strike price compared to the one being sold.

The options are bought / sold at the same strike price.

The trader expects the market to fall significantly below the lower of the strike
prices.

5) Which of the following statements about butterfly spreads are FALSE?

I. It involves buying two options at different strike prices.
II. It involves selling two options at the same strike price.
III. Strike price of the options being sold has to be below the strike price of the options
being bought.
IV. It may involve a combination of calls and puts.

II & III

III & IV

I & II

I, II, III & IV

6) A butterfly spread is based on the view that the markets will be ____.

Trading in a range.

Going up sharply.

Going down significantly.

Going up slightly before going down sharply.

7) In case of a condor spread: -
I. Four strike prices are used.
II. Two calls are bought and two calls are sold.
III. The strike price of the options being sold is greater than the strike price of those
being bought.
IV. The spread is larger than that in a butterfly spread.

II & III

I & III

II & IV

I, II & IV

8) Which of the following statements about ratio spreads is/are TRUE?

I. In a 3:1 spread, 3 options will be sold.
II. It has an unlimited profit potential if puts are bought and sold.
III. It has unlimited profit potential if only calls are bought an sold.
IV. Loss potential is unlimited when puts are used.

I & III

II & III

I only.

I, II, III & IV

9) In the case of calendar spreads ____.

Options with different expiry dates are sold and bought.

The short-dated option is bought and long -dated is sold in case volatility is
expected to decline.

The options being bought and sold have the same strike price.

All of the above.

10) Which of the following statements about diagonal spreads is/are FALSE?
I. The options being bought and sold have different strike prices.
II. The options being bought and sold have different expiry dates.
III. It is like a combination of a butterfly and a condor spread.
IV. It is a combination of a calendar and vertical spreads.

IV only.

II only.

III only.

I & IV

11) Which of the following statements about various types of options is/are TRUE?
I. Exercise of stock index options is settled in cash.
II. Interest rate options are settled in cash.
III. Currency options are structurally different from currency futures contracts.
IV. Options on futures contracts are more liquid than those on cash instruments.

II & III

I only.

I, II & IV

I, II, III & IV

12) Which of the following statements about bond options is FALSE?

Expiry date of bond options is before the maturity of the underlying bond.

Pricing of bond options is more complex than equity options.

Bond options are mostly exchange traded.

The rights in a bond option can be exercised on or before the expiration date.
13) An trader will write a bond call option if ____.

The interest rates are expected to rise.

The interest rates are expected to fall.

The interest rates are expected to remain constant.

None of the above.

14) Which of the following statements about interest rate options is/are FALSE?

Interest rate options are European style options.

An interest rate call option gives the option buyer the right to receive a known
interest rate payment.

A high level of gearing can be achieved by using interest rate options to take a
position on interest rates.

All of the above.

15) A zero-cost collar involves which of the following trades?

Buying a protective put.

Buying an out-of-the-money covered call

selling an in-the-money covered call

Selling a naked call.

16) An exporter based in Singapore is expecting $1 million payment in 3 months. He

expects that the Singapore dollar will depreciate by 10% against the US dollar over the
next 3 months. What should he do?

He should buy a suitable option to cover his ri sk.

He should buy a suitable futures contract to cover his risk.

He should do nothing as the depreciation will increase his cash inflow in SGD.

None of the above.

17) If a Singapore based importer needs to pay USD 100,000 to a US exporter in one
month, but expects the USD/SGD to move from 1.25 to 1.30, how can he protect himself
from potential loss if SGD depreciates?

He can buy a USD call SGD put.

He can buy a USD put SGD call.

He need not do anything.

None of the above.

18) If a call option holder exercises his right , the option writer will ____.

Receive the strike price from the holder and deliver the underlying.

Receive the asset from the holder and pay the exercise price.

Typically make a huge profit.

None of the above.

19) If the options belong to the same series, which of the following factors will be the
same?

Class.

Exercise price.

Expiry month.

All of the above.

20) Moneyness of options refers to:

The potential profit or loss from exercise only on the expiry date.

The relation between strike price and the exercise price.

The potential profit or loss from immediate exercise.

The relation between exercise price and the premium.

21) American and European options are the two fundamental types of options. Which of
the following statements about these two types of options is FALSE?

An American option can be exercised at any time before or at expiration.

For a particular security, strike price and maturity date, an American option can
never be worth more than an European option.

An American option is less risky compared to a European option.

Both options have the same exercise rights at expiration.

22) If the time value of an option is subtracted from the option price the resultant is
the ____.

Intrinsic value.

The premium.

The speculative value.

None of the above.

23) Which of the following statements about time value of options is/are FALSE?
I. All other things being equal, the time value is higher if the underlying asset is more
volatile.
II. Time value decays faster when the time to expiry draws near.
III. Time value is the lowest when the option is at -the-money.
IV. Time value is zero at expiration.

II & III

I & IV

III only.

II only.
24) Which of the following statements about factors affecting option prices is/are
TRUE? Other things being equal:
I. Higher stock price means higher call option price.
II. Higher strike price means lower call option price.
III. Option prices decline as the maturity date approaches.
IV. Payment of dividend increases the price of a call option.

I & IV

II & III

IV only.

I, II & III

25) What is the theoretical impact of lower interest rates on price of options?

Price of put options may decline.

Price of call options may increase.

Price of put options may increase.

Interest rate does not have any impact on any type of options.

26) Interest rates can impact option prices. Which of the following statements about
impact of interest rates on call options is FALSE?

Interest rates impact the cost to carry of the underlying.

Higher the interest rates, the greater the opportunity cost of directly buying the
underlying share.

Fall in risk-free interest rates makes the call option more valuable.

None of the above.

27) Regarding 'moneyness' of options, which of the following statements is/are TRUE?
I. Out of the money options are usually not exercised.
II. Calculation of moneyness excludes premium amount.
III. At-the-money options implies that the market price is the same as the exercise
price.
IV. If the market price is less than the exercise price, a call option is in -the-money.

III only.

II, III & IV

I, II & III

I & II

28) Which of the following statements about holding a call option is FALSE?

The intrinsic value of an American call option at expiry cannot be below zero.

The exercise value of an European call option can be negative at expiry.

If the market price is above the exercise price of an American call option, the
intrinsic value is positive.

None of the above.

29) In case of a call option, the maximum intrinsic value of the option for the holder is
____.

Zero.

Unlimited.

Equal to the strike price.

Equal to the market price of the asset.

30) If a trader short sells a call option with exercise price of $150, which of the
following statements is/are TRUE?

The option will have zero intrinsic value if the market price of the underlying is
$150.

The option will have an intrinsic value of $20 if the market price of the underlying
is $170.

The trader can lose maximum $150 on the trade.

All of the above.

31) If the market price of the underlying is greater than the exercise price, a call option
writer ____.

Will surely suffer a loss.

Will surely be in profit.

Will be in profit if the premium received by him is greater than the difference
between the market price and the exercise price.

Will suffer a loss if the premium received by him is greater than the difference
between the market price and the exercise price.

32) The holder of a call option is at break even if the market price of the underlying is
equal to ____.

The exercise price.

Exercise price plus the premium paid.

Exercise price minus the premium paid.

None of the above.

33) Which of the following statements about call options is FALSE?

A call holder can exercise the option to reduce his loss due to cost of the option.

A call holder can maximum lose up to the premium paid for the option.

The profits made by the call option writer are equal to the loss suffered by the
holder.

None of the above.

34) In the context of the alternatives available with a put holder, which of the following
statements is/are TRUE?

He can sell the underlying to the put writer.

He can let the option expire worthless.

He will not exercise the option if the market price is greater than the strike price.

All of the above.

35) The intrinsic value of a put is ____.

The either zero, or the difference between the exercise price and the strike price,
whichever is more.

The either zero, or the difference between the strike price and the exercise price,
whichever is more.

The either zero, or the difference between the strike price and the exercise price,
whichever is less.

The difference between the exercise price and the strike price.
36) If the strike price of a put option is $100, the market value is $99, and the option
premium paid is $2, what is the profit/loss to the option holder?

Profit of $3.

Loss of $1.

profit of $3.

Loss of $2.

37) If the strike price is $200, a put writer receives a premium of $12, but ultimately
makes a profit of $9 at expiry, what is the market price of the stock at expiry?

$203

$197

$212

$209

38) Which of the following statements about writing options is FALSE?

Short positions in put options can have zero value at expiration.

Normally, the best outcome for a call option writer is when the holder does not
exercise the option.

Short positions in put options can have positive value at expiration.

None of the above.

39) If one looks at the payoff graph of call options at expiration, which of the following
observations can be made?
I. A long call will be upward sloping after the strike price if the premiums are not
considered.
II. A short call will have a downward slope before the strike price if the premium is not
considered.
III. The payoff graph of a short call moves up if the premium is factored.
IV. The payoff graph will move down if the premium is factored in a long call.

I & III

II & IV

IV only.

I, III & IV

40) Characteristics of the payoff graph of a put option at expiry include ____.

Upward slope of a long put before the exercise price.

A horizontal line after the exercise price for a short put.

A horizontal line before the exercise price for a long put.

None of the above.

41) The difference between payoff and net profit of an option position is its ____.

intrinsic value.

time value

potential value

Premium
42) What is the relationship between the breakeven point of a call option buyer and the
corresponding call option writer?

Both are the same.

Breakeven point of the call option buyer is higher.

Breakeven point of the call option writer is higher.

There is no relationship between the two.

43) Based on the Put-Call parity theory, a put can be synthesised. Which of the
following steps can form part of the process of creating a synthetic put?
I. Buying a call.
II. Selling the stock.
III. Investing the proceeds in a commercial paper.
IV. Exercising the call option as so on as it is in-the-money.

I & II

II & III

III & IV

I, II, III & IV

44) Various synthetic positions can be created based on the put -call parity theory.
Which of the following strategies about creation of specific positions is NOT CORRECT?

A long position on an asset can be created by buying the call, short -selling the put
and borrowing the present value of the exercise price.

A long position in a call can be created by buying the stock and the put, and
borrowing the present value of the exercise price.

A long position in the put can be created by buying the call option, selling the stock
short, and lending the present value of the exercise price.

None of the above.

45) Synthetic positions can be created in various ways. Which of the following
statements about creation of synthetic structures is/are TRUE?
I. Creating a long put involves selling the underlying and buying the call.
II. Creating a long call involves buying the put and selling the underlying.
III. Creating a short put involves buying the underlying and buying the call.
IV. Creating a short call involves selling the underlying and selling the put.

I, II, III & IV

II & III

I & IV

IV only.

46) The assumptions made in the put -call parity formula include ____.

The option can be exercised on any date during its term.

There are no dividends paid on the underlying stock.

There are no counterparty risks involved.

All of the above.

47) Which of the following statements about the put -call parity concept is FALSE?

It is the relationship between European call and put prices for the same underlying
share, strike price and expiration month.

It is always possible to replicate one type of investment with a combination of

other three.

Options can be priced from a relative standpoint.

None of the above.

48) In the put-call parity theory, the present value of the strike price of the option is
obtained by discounting from the expiry date at ____.

the risk free rate

at the appropriate long -term bond interest rate

at the appropriate junk bond rate

None of the above.

49) Regarding valuation and pricing of futures and options, which of the following
statements is FALSE?

Volatility is the annualized standard deviation of a share's daily price changes.

The most important factor for valuing an option is the volatility of the underlying
asset.

Futures price and options price are always positively correlated.

None of the above.

50) Which of the following conclusions about pricing of options is/are NOT CORRECT?
I. Price of an option can never be greater than the price of its underlying asset.
II. Price of an option is a value between its intrinsic value and the strike price.
III. Price of an option can never be negative.
IV. When the risk is zero, the price of the option can be zero.

I & IV

II only.

IV only.

II & III
51) There are various models to price options. Which of the following statements about
the models is/are TRUE?

Black-Scholes model is the first widely used model.

Binomial model is more suitable for European style options.

Binomial model does not incorporate the early exercise feature.

All of the above.

52) The inputs in the basic Black-Scholes formula for pricing options include: -
I. Interest rates.
II. Spot price.
III. Volatility of the underlying.
IV. Historical average growth rate of the underlying .

I, II & IV

I, II & III

II & III

I & III

53) Which of the following statements about Black -Scholes pricing model of options
is/are FALSE?

It includes six factors for option valuation.

It does not perfectly describe real -world options trading.

It assumes American-style exercise feature.

All of the above.

54) Variability of the price of the underlying asset is measured by various types of
volatility. In this regard, which of the following statements is/are TRUE?

Statistical volatility measures actual asset price changes over a specific period.

Implied volatility measures how much the market expects asset prices to move for
an option price.

Implied volatility can be calculated by working backwards with the Black -Scholes
model.

All of the above.

55) If the price of a call option increases by 10 cents for a 25 cents rise in the price of
the underlying, the delta is ____.

0.10

0.25

2.50

0.40

56) If the delta of an option is 0.4, which of the following statements about the option
is/are TRUE?
I. A $1 increase in the price of the underlying will lead to a 40 cents rise in the price of
the option.
II. It can be a call or a put option.
III. It can only be a call option.
IV. It can only be a put option.

II only.

III & IV

I & III

I & II
57) Which of the following statements about option Greeks and hedging of options
positions is FALSE?

Delta hedging is a dynamic process.

If the delta of a call option is 0.6, and a trader has purchased 100 such options, he
will need to buy 60 options for delta hedging his position.

Gamma is a second order relationship between the option price and the price of
the underlying asset.

None of the above.

58) Which of the following statements about option Greeks and hedging of options
positions is/are TRUE?
I. If the gamma is high, delta does not provide a good estimation of the sensitivity of
the option to price changes in the underlying asset.
II. Gamma is high when the time remain ing till expiry is large.
III. Delta hedging does not work well if the option is at the money.
IV. If gamma is large, delta changes fast.

I, III & IV

I, II, III & IV

II & IV

I only.

59) Which of the followings statements about Vega measure of price sensitivity of
options is/are FALSE?
I. It gives the sensitivity of the price of option to volatility.
II. Vega is higher when option is deep out of the money.
III. Vega is calculated as the variance of the continuously compounded ret urn on the
underlying.
IV. Vega of a put is negative.

III & IV

III only.

II, III & IV

I & II
60) Theta is an important indicator of price sensitivity of options. Which of the
following statements about theta is/are TRUE?
I. It gives the sensitivity of the option price to the time to expiry.
II. Theta is always negative for call options.
III. Theta is always positive for put options.
IV. Higher value of theta implies that the rate of decay of option value with time will be
faster.

I, II & IV

I, II, III & IV

II only.

IV only.

61) Which of the following statements about Rho is/are FALSE?

Rho gives the sensitivity of the option price to risk -free interest rate.

European style call options are not significantly sensitive to Rho.

European style put options are significantly sensitive to Rho.

All of the above.

62) If a graph between the gamma of an option (X -axis) and its underlying share price
(Y-axis) is plotted, what will be its shape?

Downward sloping straight line.

Upward sloping straight line.

A horizontal straight line.

None of the above.

63) If two options have the same delta, which one will be riskier?

The one with lower vega.

The one with lower implied volatility.

The one with higher gamma.

The one with the lower gamma.

64) Theta is normally shown as a ____.

10-day measure

1-day or 7-day measure

14-day or 21 ay measure

one month measure

65) If the theoretical value of an option changes by minus 5 cents per day, calculate the
1-day theta?

-0.05

-0.20

-0.02

0.50

66) If the vega of an option is 0.05, a 2% rise in implied volatility will lead to how much
change in the theoretical value of the option price?

There will be no change.

It will increase by 0.025

It will decrease by 0.05.

It will increase by 0.1.

67) If the rho of an option is 0.10, what is the change in option price if the implied
volatility decreases by 5%.

It will increase by 0.05.

It will decrease by 0.05.

It will decrease by 0.02.

Cannot be determined.

68) Convertible bonds have which of the following characteristics?

They usually have embedded call options on the underlying equity securities.

The bonds can be converted into shares of the same issuer.

The bonds can only be converted into shares of another issuer if that issuer is
related to the bond issuer entity.

All of the above.

69) Parity value of a convertible bond is ____.

Market price of the underlying share X conversion ratio.

Market price of the underlying share ?? conversion ratio.

Conversion ratio ?? market price of the underlying share.

None of the above.

70) If the conversion value of a convertible bond is $90 and the price of equivalent
straight bond is $100, the maximum value of the convertible bond is ____.

$90

$95

$100

None of the above.

71) If 5 shares can be exchanged for one convertible bond and the market price of the
underlying share is $12, what is the conversion value?

$60.00

$2.40

$0.42

None of the above.

72) Which of the following statements about market conversion price of a convertible
bond is/are FALSE?
I. It is the effective price which the investor pays for the bond considering the existing
market price of the underlying.
II. It is also seen as a breakeven price for the investor.
III. It is used to determine the market conversion prem ium per share.
IV. It is also called the conversion parity price.

II, III & IV

II & IV

I & III

I only.

73) The market price of a convertible bond is $20 and the conversion ratio is 5. What is
the market conversion premium per share if the share price is $3?

$2.00

$4.00

$0.60

$1.00
74) The minimum value of a convertible bond is ____.

Its intrinsic value.

Conversion value or value of an equivalent straight bond, whichever is less.

Conversion value or value of an equivalent straight bond, whichever is more.

None of the above.

75) Which of the following statements about convertible bonds is FALSE?

The downside in a convertible bond is not fixed.

The downside of a convertible bond can be calculated as the difference between

the convertible price and the straight bond.

The market value conversion per share can be considered the value of the
embedded call option.

None of the above.

76) If the market price of a convertible bond exceeds its straight value by 5%, the
downside risk is ____.

5%

1.50%

10%

2%

77) A $100 face value convertible bond has a coupon of 8%. The conversion ratio is 5
and the dividend per share is $1. If the market conversion premium is $2, what is the
premium payback period?

4 years.

3.33 years.

2.67 years.

8 years.
78) If the market conversion premium for a convertible bond is $0.5 and the income
differential per share is $0.2, what is the premium payback period?

4 years

2.5 years

5 years

Cannot be determined.

79) Calculate the income differential per share for a convertible bond based on the
following data. Conversion ratio is 5, dividend per sh are is $0.5, and coupon is $5.

$0.40

$1.00

$0.50

$12.50

80) In the case of a convertible bond, if the value of call option on stock is $2 and the
straight bond value is $10, what is the convertible bond value?

$20

$5

$8

$12

81) A warrant is a derivative ____.

Which gives the investor an option to buy a stated number of shares of an

underlying.

Which gives the investor an option to sell a stated number of shares of an

underlying.

Which is not margined.

All of the above.

82) Which of the following statements about warrants is/are FALSE?
I. They can be issued by listed companies as an attachment to rights issues for shares.
II. They can be listed and traded separately.
III. If issued as an attachment to a bond, they help increase the coupon payable t o the
holders.
IV. Exercise of warrants by holders d ilutes the company's earnings.

III only.

I only.

II & IV

II only.

83) Which of the following statements about warrants are TRUE?

I. Structured warrants are issued by companies issuing the underlying shares.
II. In Singapore, company warrants can be exercised anytime before expiry.
III. Structured warrants can be based on commodities as underlying assets.
IV. Structured warrants can be based on investment fu nds as underlying instruments.

I & III

II & IV

II, III & IV

I, II, III & IV

84) Which of the following statemen ts about warrants is/are TRUE?

Company warrants are usually American -style options.

Company warrants have maturities between 3-5 years.

Company warrants are long-dated call options.

All of the above.

85) Which of the following statements about a ze ro strike warrant is/are TRUE?

It is essentially a synthetic bond.

It is always out-of-the-money.

The cash settlement and warrant price are equal to the closing price of the
underlying security.

All of the above.

86) Which of the following statements about market outlook and associated products
is/are FALSE?
I. A Yield enhanced security can be used in case of a bullish outlook.
II. Call warrants can be purchased if one has a bullish outlook.
III. A trader can purchase a put warrant if he has a bearish outlook.
IV. Index linked notes can be purchased in case of a bearish outlook.

I, II, III & IV

I & IV

II & III

IV only.

87) Which of the following statements about common features and terms of a warrant
issue is/are TRUE?
I. A conversion ratio determines the number of warrants needed to be exercised to buy
or sell one unit of the underlying security.
II. Warrants can be settled by physical delivery.
III. Structured warrants are priced at a fraction of the share price.
IV. Warrants can be settled by cash.

I & III

I, II, III & IV

II & IV

III only.
88) Gearing ratio of a warrant can be calculated as ____.

Share price ?? (Issue price X conversion ratio)

Share price ?? (warrant price X conversion ratio)

Warrant price ?? (share price X conversion ratio)

(Warrant price X conversion ratio) ?? share price

89) The gearing ratio of a warrant is 20, the warrant price is $2, and the conversion
ratio is 5. The Share price is ____.

$100

$40

$50

$200

90) If the price of the underlying share of a warrant remains the same o ver one month,
its price ____.

Will remain the same.

Will increase.

Will decrease.

Can increase or decrease based on market conditions.

91) The delta of a warrant is 0.8, and a $1 change in the share price leads to a $0.4
change in the price of the warrant. The conversion ratio of the warrant is ____.

2.50

2.00

12.50

0.50
92) If the market price of an underlying asset of a warrant is equal to its strike price, its
delta will be around ____.

1.00

Zero.

0.50

Cannot be determined.

93) Which of the following statements a bout warrants is TRUE?

If a trader is expecting a large move in the price of the underlying asset, he should
buy warrants which are out-of-the-money.

If a trader is expecting a small move in the price of the underlying asset, he should
buy warrants which are slightly out-of-the-money.

Delta of put warrants is always positive.

Delta of deep-in-the-money warrants is zero.

94) S is the share price, W is the warrant price, dW is the change in warrant price for dS
amount of change in the share price. Effective gearing of the warrant is calculated as: -
I. delta X gearing ratio.
II. delta ?? gearing ratio.
III. (S??W) x (dS??dW).
IV. (S??W) x (dW??dS).

I & IV

II & III

I only.

IV only.
95) Which of the following statements about simple and effectiv e gearing of warrants is
TRUE?

Effective gearing always greater than Simple gearing.

Simple gearing is always greater than effective gearing.

Simple gearing is greater than or equal to effective gearing.

Effective gearing is greater than or equal to simple gearing.

96) If simple gearing of a warrant is 10 and the delta is 0.4, a 5% fall in the price of the
underlying will result in ____.

50% fall in warrant price.

12.5% rise in warrant price.

5% rise in warrant price.

20% fall in warrant price.

97) The implied volatility of a warrant is a function of the: -

I. Dividend yield.
II. Interest rates.
III. Warrant price.
IV. Strike price.

IV only.

III & IV

II, III & IV

I, II, III & IV

98) The trading name of a structured warrant has a particular format. Which of the
following statements about the format is/are FALSE?
I. The name starts with the name of the underlying instrument.
II. Name of an American style warrant is denoted by the prefix 'a'.
III. Strike price is shown after the name of the underlying instrument if it is an index.
IV. Name of the issuer is shown a t the end of the trading name.

II & IV

I, II, III & IV

IV only.

III only.

99) The implied volatility of a warrant is: -

I. The volatility implicit in the market.
II. Market's consensus estimate about the warrant's underlying price volatility during
the life of the warrant.
III. A measure of risk.
IV. A factor for comparing warrant value.

I & II

I, II & IV

II, III & IV

I only.

100) If effective gearing of a warrant is 10 and delta is 2, what is the simple gearing?

20

10

12
101) If the market price of the underlying is $10 and the exercise price is $9, the
intrinsic value of a put warrant for a holder is $ ____.

102) If the intrinsic value of a call warrant is $5, the market price of the underlying is
$100, the strike price of the warrant is ___ _.

$105

$95

$500

$20

103) What is the conversion price of a call warrant if the market price of a share is $50,
the conversion ratio is 2 and the warrant price is $2?

$54

$46

$51

Cannot be determined.

104) A put warrant has a conversion price of $100. What is the warrant price if the
strike price is $102 and the conversion ratio is 3?

$6

$0.67

$1.50

$2
105) Given the same exercise price, conversion ratio and warrant price, the conversion
price ____.

Of a put warrant will be more than that of a call warrant.

Of a call warrant will be more than that of a put warrant.

Of a call warrant will be equal to that of a put warrant.

None of the above.

106) In case of a call warrant, the premium is: -

I. The price paid for the warrant.
II. Intrinsic value - warrant price.
III. Warrant price - intrinsic value.
IV. Conversion price - market price of the underlying.

I only.

I & IV

II only.

III & IV

107) In case of warrants, the premium: -

I. For a put warrant is negative.
II. Is largely the time value of the warrant.
III. Helps investors calculate their breakeven price.
IV. Is expressed as a percentage of warrant price.

II & III

III only.

II & IV

I & III
108) The exercise price of a put warrant is $25 and the market price is $27. If the
conversion price is $22, what is the premium in dollar terms?

$1.68

$5

$3

Cannot be determined.
109) The premium of a call warrant is 10%, conversion ratio is 4, warrant price is $0.50,
and the strike price is $100. What is the m arket price of the underlying?

$102.00

$98.00

$103.50

$92.73

110) What is the percentage premium of a put warrant if the conversion ratio is 1,
warrant price is $1, strike price is $10 0 and the market price is $99?

1.00%

1.01%

0%

2%

111) Which of the following statements about the role of a warrant issuer is FALSE?

If a holder exercises a call, the issuer is required to deliver the underlying asset in
return for the strike price.

If a holder exercises a put, the issuer is required to pay the exercise price in return
for the underlying asset.

Most of the structured warrants in Singapore are settled by physical delivery of the
underlying.

None of the above.

112) If issuers of structured warrants commit to make a market for the warrants issued
by them, which of the following statements is/are FALSE?

They need not comply with the minimum placement requirement.

The minimum issue size requirement increases to SGD 5 million from SGD 2 million.

They need not comply with holder size requirements.

All of the above.

113) The designated market maker appointed by the structured warrant issuer performs
which of the following functions?
I. Provides competitive bid and offer prices for the warrants.
II. Makes a market for the warrants round -the-clock.
III. Sets the minimum and maximum bid -offer spread from time to time.
IV. Provides liquidity to the market.

I & IV

I, II, III & IV

I, II & IV

II & III

114) Physical settlement of a call warrant involves which of the following steps?
I. Submission of an exercise notice by the warrant agent to the holder.
II. Cash payment by the holder to the warrant agent based on the strike price.
III. Intimation by the warrant agent to the Cent ral Depository Pte Lt (CDP) about the
exercise.
IV. Credit of the holders account with the underlying securitie s by the CDP.

II & IV

I & III

II, III & IV

I, II, III & IV

115) The role of the warrant agent in the physical settlement of a put warrant
includes:-
I. Debiting the account of the holder for the underlying securities.
II. Crediting the account of the issuer with the underlying security.
III. Making a cash payment to the holder on behalf of the issuer.
IV. Paying the exercise expense to the issuer.

III only.

I, II & IV

II only.

IV only.

116) If the market price of the underlying shares of a call warrant exceeds the exercise
price by $2 and the conversion ratio is 10, the cash s ettlement per warrant is ____.

$5

$0.20

$20

$0.40

117) A path dependent contract is one in which ____.

The payoff depends on the difference between the initial and the terminal price of
the underlying asset.

The payoff depends solely on the terminal price of the underlying asset.

The payoff depends on the path the value take to reach the final value.

None of the above.

118) Which of the following statements about settlement of structured warrants in
Singapore is/are TRUE?
I. They are path dependent contracts.
II. They have Asian style of expiry settlements.
III. The last trading day is the same as the expiry day.
IV. The settlement price is the geometric average of the official closing price of the
underlying asset for 5 days prior to the expiry date.

I, II, III & IV

II & IV

III only.

I & II

119) In Singapore, an automatic -exercise structured warrant in th e Unit-Share markets

has ____.

Its last trading day 5 business days before the expiry date.

Its settlement date for the trade at least a day prior to the expiry date.

Its settlement price based on the arithmetic average of the official closing price of
the underlying 3 days prior to the expiration.

All of the above.

120) If the cash settlement per warrant is $5, the share price is $80, and the conversion
ratio is 2, what is the exercis e price?

$90

$85

$82

$70
1 C 4.12 21 B 4.4 41 D 4.6 61 C 4.8 81 D 5.1 101 ?? 5.4
2 B 4.12 22 A 4.4 42 A 4.6 62 D 4.8 82 A 5.1 102 B 5.4
3 C 4.12 23 C 4.4 43 A 4.7 63 C 4.8 83 C 5.1 103 D 5.4
4 A 4.12 24 D 4.5 44 A 4.7 64 B 4.8 84 D 5.1 104 B 5.4
5 B 4.12 25 C 4.5 45 C 4.7 65 A 4.8 85 C 5.1 105 B 5.4
6 A 4.12 26 C 4.5 46 B 4.7 66 D 4.8 86 B 5.11 106 D 5.4
7 D 4.12 27 C 4.6 47 D 4.7 67 D 4.8 87 B 5.2 107 A 5.4
8 C 4.12 28 B 4.6 48 A 4.7 68 D 5.10 88 B 5.2 108 B 5.4
9 D 4.12 29 B 4.6 49 C 4.8 69 A 5.10 89 D 5.2 109 D 5.4
10 C 4.12 30 A 4.6 50 B 4.8 70 C 5.10 90 C 5.2 110 C 5.4
11 C 4.14 31 C 4.6 51 A 4.8 71 A 5.10 91 B 5.2 111 C 5.5
12 C 4.14 32 B 4.6 52 B 4.8 72 D 5.10 92 C 5.2 112 B 5.6
13 A 4.14 33 D 4.6 53 C 4.8 73 D 5.10 93 A 5.2 113 A 5.6
14 B 4.14 34 D 4.6 54 D 4.8 74 C 5.10 94 A 5.2 114 C 5.6
15 A 4.14 35 A 4.6 55 D 4.8 75 D 5.10 95 C 5.2 115 A 5.7
16 C 4.15 36 B 4.6 56 C 4.8 76 A 5.10 96 D 5.2 116 B 5.7
17 A 4.15 37 B 4.6 57 D 4.8 77 B 5.10 97 D 5.2 117 C 5.7
18 A 4.3 38 C 4.6 58 A 4.8 78 B 5.10 98 A 5.2 118 D 5.7
19 D 4.3 39 D 4.6 59 C 4.8 79 C 5.10 99 C 5.2 119 B 5.7
20 C 4.3 40 B 4.6 60 A 4.8 80 D 5.10 100 C 5.2 120 D 5.7