Most Recent PRMIA 8006 Exam Dumps

The futures price of the contract will be the future value of the spot price, calculated at a net rate equal to the cost of funding the futures position, less any dividends or other distributions. Also note that when rates are continuously compounded, Future Value = Present Value x (exp(rate x time)).

Therefore in this case the futures price for the S&P = 1000 * exp((5%-2%)*3/12) = 1007.53

The put-call parity applies to European options and does not hold for American options because the latter can be exercised at any time up to expiry. Therefore statement I is false.

An American put can not be cheaper than a European put is correct. This is because the American put will always be valued at at least its intrinsic value whereas a European value may be valued at less than intrinsic value if the exercise date is too far away in the future. This is because a long time interval will increase the chance that the intrinsic value may not be realized at expiry. Because the American put can be exercised anytime, it will always be at least equal to its intrinsic value because if it were to be cheaper than that, investors would immediately buy and exercise it, creating a riskless profit. Therefore statement II is correct, and statement IV is correct as well.

It may be optimal to exercise an American put (unlike an American call - note the difference!) before its expiry on a non dividend paying stock. This would be the case only when the put is deep in the money. If the option is really deep in the money (say, when the underlying's price is down to zero), then it may be worthwhile to cash the option out prior to expiry as the upside might be lost if time were to be allowed to pass. Additionally, any further upside in the case of a deep in the money option may be zero or very little, and the time value of money would also make immediate exercise prefereable. Therefore statement III is not correct.

Choice 'a' correctly describes a holder extendible option. Choice 'd' describes a writer extendible option. The other choices are meaningless.

Average rate options will be the most cost effective in this scenario as they are cheaper than vanilla options. Writer extendible options on commodities will be even more expensive, and correlation products are irrelevant to the manufacturing company's hedging needs.

Investors in CDOs bear credit risk. The SPV is merely a conduit that owns the underlying assets on which the sponsoring institution has bought protection. The investors have sold them this protection, and are on the hook for defaults or other credit events. The reference entity is relevant only to CDSs, not CDOs. Choice 'b' is the correct answer.