Question

1. Which of the following statements is LEAST LIKELY to be CORRECT?

A. Price limits on futures contract refer to the imposed limits on the daily price change.

B. The clearinghouse, in U.S. futures markets acts as the counterparty in futures contracts and guarantees performance of futures contract obligations.

C. If the margin account balance falls below the maintenance margin level, additional deposit is required to bring the balance up to the maintenance margin level.

2. What discount rate should be used to discount future cash flows of derivatives pricing models?

A. Risk-free rate.

B. WACC

C. Cost of equity or cost of debt depending on the underlying asset.

3. For a forward contract on an asset that has no costs or benefits from holding it to have zero value at initiation, the arbitrage-free forward price must equal:

A. The expected future spot price.

B. The present value of the expected future spot price.

C. The future value of the current spot price.

Answer 1

Question 1.

Option C is incorrect

If the account balance falls below the maintenance margin, additional deposit is required to bring the balance up to the initial margin level.

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