56 CFA Practice Questions Online Free with Instant Answers on Derivatives

56 CFA Practice Questions Online Free with Instant Answers on Derivatives showcase friendly format with zero fee, that adapts to user’s demand for an easy-to-understand and update CFA online mock test free. These concise and basic questions are comprehensively covered here throughout multiple choice format, which enable you to think more critically about derivatives principles, level up comprehension of this topic area and be more self-assured to tackle with tough exam questions. After answering those questions, please submit all at the end to have your exact scores. Hope you’re doing well on this practice and preparing the best for the approaching exam! Don’t forget to leave your thoughts in the box below!
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The probability of an up move is equal to 1 minus the probability of a down move

• What is the relationship between the probability of a down move and up move in a binomial model for options pricing?
• What is the relationship between the size of an up move and down move in a binomial model for options pricing?
• How do you calculate the risk neutral probability of an up move in a binomial model?
• what is the difference between the price of the option (option premium) and the intrinsic value of the option known as?

Vt(T) = St - (Fo(T) / (1+Rfr)^T-t)

• what is the most often used interest rate in an FRA?
• what are price limits on futures contracts?
• with an equation, describe how, during its life (before the contract expires and after initiation), the value of the forward contract is the spot price of the asset minus the PV of the forward price.
• what is the price of a forward contract referring to?

an item that is very difficult to sell short (non-monetary benefits of holding onto the asset)

• what is a good example of an asset that has convenience yield?
• What is a one period binomial model?
• what is a plain vanilla interest rate swap?
• What is the intrinsic value of an option that is out of the money?

interest rates are inversely related to put option prices and directly related to call option prices

• How many factors determine the price of an option?
• describe how the risk free rate will affect the price of an option.
• describe how volatility will affect the price of an option.
• describe the relationship between interest rates and the prices of put and call options

The only difference is that all FRAs have 0 value at the beginning of when you create the contract, so the swap (since it is agreed upon in the past) will have cash flows with value

• what is a plain vanilla interest rate swap?
• what is the most often used interest rate in an FRA?
• What is the difference between a synthetic FRA and an FRA?
• What is the main difference between an interest rate swap and a series of FRAs?

because at the end of each day they settle the futures accounts and you can withdraw money out for your benefit sooner than when the contract expires

• why is the price of a futures contract higher than a forward contract when interest rates are positively correlated to futures prices?
• what is the equation that must hold true for forward contracts to prevent arbitrage (in a risk neutral environment)?
• Describe when the price of a future would be higher than a forward contract and why.
• what must the price be of a forward contract that has no costs or benefits from holding it?

never in history

• how often do futures clearinghouses default on their contracts?
• what is open interest when talking about derivative contracts?
• What does the term moneyness refer to?
• what is the main purpose of a clearinghouse in derivative trading?

the price is the price specified in the contract at which the two parties agree to trade the underlying asset in the future

• What is the put call-forward parity?
• What is the equation for the put call parity?
• what is the price of a forward contract referring to?
• what is a forward commitment?

(1+Rf - size of downward move) / (size of an up move - size of a down move)

• How many factors determine the price of an option?
• How do you calculate the risk neutral probability of an up move in a binomial model?
• What is the intrinsic value of an option that is out of the money?
• What is a one period binomial model?

one party makes fixed rate interest payments on a notional principal amount and the other makes floating rate payments

• what is a contingent claim?
• what is the most often used interest rate in an FRA?
• what is a plain vanilla interest rate swap?
• What is a protective put?

the fixed rate part of the forward is not necessarily always the same, whereas the swap will be because it is agreed upon in advance

• write out the equation that shows how the forward price of an asset to be delivered in time t must equal the spot price times the Rfr (or there is an arbitrage opportunity).
• other than the value of the forward contract in each cash flow of the swap is not 0, what is the main difference between a fixed for floating swap and a series of forward contracts?
• contrast the cost of carry and convenience yield for an asset.
• what is the price of a forward contract referring to?

when the underlying asset has no cash flows (there is no value to exercising the option early)

• when would american style options and european style options be priced the exact same?
• How many factors determine the price of an option?
• what is the main purpose of a clearinghouse in derivative trading?
• What is the intrinsic value of an option that is out of the money?