8006 Exam Dumps : Exam I: Finance Theory Financial Instruments Financial Markets - 2015 Edition

The no-arbitrage futures price is given by exp(0.5*(4%-1%))*$1000 = $1015.11. Therefore Choice 'a' is the correct answer.

This is a trick question, no great science to it. Remember that the 'present value of a basis point' refers to PV01, which is the same as BPV (basis point value) referred to in the PRMIA handbook. In other textbooks, the same term is also variously called 'DV01' (dollar value of a basis point). Remember these other terms too.

PV01, or the present value of a basis point, is the change in the value of a bond (or other fixed income security) from a 1 basis point change in the yield. PV01 is calculated as (Price * Modified Duration/10,000).

The put-call parity can be expressed as:

Call – Put = Spot – PV of exercise price

Note that a negative sign above means a short position. The 'term PV of exercise price' is the same as a bank deposit placed today equivalent to the PV of the exercise price so that we will have the cash flow on the exercise date to exercise the option.

Therefore only Choice 'd' is the correct answer as rearranging the above gives us Buying a call + Bank Deposit = Buying the stock + Buying a put.

Choice 'd' is therefore the correct answer.