Give reason why choice the option
(a) Consider futures contracts on a coupon-paying bond. If the cost of
carry model holds, what should be the shape of the term structure of
futures prices?
1. Upward sloping.
2. Downward sloping.
3. Flat.
4. Could be any of the above.
(b) Exchange-traded derivatives usually offer which of the following
advantages (may be morethan one correct answer) compared to over-
the-counter derivatives?
1. Greater customization.
2. Greater liquidity.
3. Lower transaction costs.
4. The clearinghouse is willing to buy or sell contracts.
(c) Consider the deltas (\text{\textdelta}) for European call and put options on a given
asset where the options have the same exercise price and same time to
expiration. Which of the following is true?
1. Call option delta is always lower.
2. Call option delta is always greater.
3. The call and put deltas are always the same.
4. Call option delta may be higher, lower, or equal.
