[{"data":1,"prerenderedAt":-1},["ShallowReactive",2],{"doc-seo-399290-105":3,"detail-sidebar-cat-0-en-105":81,"doc-detail-399290-en":131},{"code":4,"msg":5,"data":6},0,"ok",{"site_id":7,"language":8,"slug":9,"title":10,"keywords":11,"description":12,"schema_data":13,"social_meta":74,"head_meta":76,"extra_data":78,"updated_unix":80},105,"en","derivatives-introductory-derivatives-questions","Derivatives - Introductory Derivatives Questions","","Introductory derivatives exam questions and solution-oriented guidance for the Society of Actuaries’ Exam IFM. The material explains that the questions mirror sample items from the MFE set, retaining numbering for comparison, and notes curriculum differences for May 2007 and May 2009. 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The question numbers are retained for ease of comparison.","Answer",{"name":66,"@type":61,"acceptedAnswer":67},"Which prior-year questions do not apply to the new IFM curriculum?",{"text":68,"@type":64},"For May 2007, Questions 2, 7, 9, 12-13, 16, and 18 do not apply. 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The question numbers have been retained for ease of comparison.  \nThese questions are representative of the types of questions that might be asked of candidates sitting for Exam IFM. These questions are intended to represent the depth of understanding required of candidates. The distribution of questions by topic is not intended to represent the distribution of questions on future exams.  \nIn this version, standard normal distribution values are obtained by using the  \nCumulative Normal Distribution Calculator and Inverse CDF Calculator  \nFor extra practice on material from Chapter 9 or later in McDonald, also see the actual Exam MFE questions and solutions from May 2007 and May 2009  \nMay 2007 : Questions 1, 3-6, 8, 10-11, 14-15, 17, and 19  \nNote: Questions 2, 7, 9, 12-13, 16, and 18 do not apply to the new IFM curriculum  \nMay 2009 : Questions 1-3, 12, 16-17, and 19-20  \nNote: Questions 4-11, 13-15, and 18 do not apply to the new IFM curriculum  \nNote that some of these remaining items (from May 2007 and May 2009) may refer to“stock prices following geometric Brownian motion.” In such instances, use the following phrase instead: “stock prices are lognormally distributed.”  \nCopyright 2018 by the Society of Actuaries  \nIntroductory Derivatives Questions  \n1.  \nDetermine which statement about zero-cost purchased collars is FALSE  \n(A) A zero-width, zero-cost collar can be created by setting both the put and call strike prices at the forward price.  \n(B) There are an infinite number of zero-cost collars.  \n(C) The put option can be at-the-money.  \n(D) The call option can be at-the-money.  \n(E) The strike price on the put option must be at or below the forward price.  \n2.  \nYou are given the following:  \n• The current price to buy one share of XYZ stock is 500.  \n• The stock does not pay dividends.  \n• The continuously compounded risk-free interest rate is 6% .  \n• A European call option on one share of XYZ stock with a strike price ofK that expires in one year costs 66.59.  \n• A European put option on one share of XYZ stock with a strike price ofK that expires in one year costs 18.64.  \nUsing put-call parity, calculate the strike price, K.  \n(A) 449  \n(B) 452  \n(C) 480  \n(D) 559  \n(E) 582  \n3.  \nHappy Jalapenos, LLC has an exclusive contract to supply jalapeno peppers to the organizers of the annual jalapeno eating contest. The contract states that the contest organizers will take delivery of 10,000 jalapenos in one year at the market price. It will cost Happy Jalapenos 1,000 to provide 10,000 jalapenos and today’s market price is 0.12 for one jalapeno. The continuously compounded risk-free interest rate is 6% .  \nHappy Jalapenos has decided to hedge as follows:  \nBuy 10,000 0.12-strike put options for 84.30 and sell 10,000 0.14-stike call options for 74.80. Both options are one-year European.  \nHappy Jalapenos believes the market price in one year will be somewhere between 0.10 and 0.15 per jalapeno.  \nDetermine which of the following intervals represents the range of possible profit one year from now for Happy Jalapenos.  \n(A) –200 to 100  \n(B) –110 to 190  \n(C) –100 to 200  \n(D) 190 to 390  \n(E) 200 to 400  \n4.  \nDELETED  \n5.  \nThe PS index has the following characteristics:  \n• One share of the PS index currently sells for 1,000 .  \n• The PS index does not pay dividends.  \nSam wants to lock in the ability to buy this index in one year for a price of 1,025 . He can do this by buying or selling European put and call options with a strike price of 1,025 .  \nThe annual effective risk-free interest rate is 5% .  \nDetermine which of the following gives the hedging strategy that will achieve Sam’s objective and also gives the cost today of establishing this","cbCaidUWJgbV8nwG","https://ap.wps.com/l/cbCaidUWJgbV8nwG","pdf",573280,"English","# Introductory Derivatives Questions\n## Topic and selection notes\n## Sample question set (1-9)","[{\"question\":\"How are these IFM derivatives questions selected and what numbering convention is used?\",\"answer\":\"The questions and solutions are based on McDonald readings and are identical to questions from a former MFE sample set. The question numbers are retained for ease of comparison.\"},{\"question\":\"Which prior-year questions do not apply to the new IFM curriculum?\",\"answer\":\"For May 2007, Questions 2, 7, 9, 12-13, 16, and 18 do not apply. For May 2009, Questions 4-11, 13-15, and 18 do not apply.\"},{\"question\":\"What option-related concepts are covered in the introductory question set?\",\"answer\":\"The set includes zero-cost purchased collars, put-call parity for calculating strike prices, hedging with European puts and calls, expected price comparisons for forwards, identifying a prepaid forward contract, and strategies using straddles/strangles and butterfly spreads.\"}]","Derivatives - Introductory Derivatives Questions | PDF",1790495908,265]