CFA Practice Question

There are 227 practice questions for this study session.

CFA Practice Question

This is taken from an example in the study notes. A forward contract is priced at $65. European put options on the forward contract have an exercise price of $70 and expire in 180 days. The continuously compounded risk-free rate is 5.25% and volatility is 0.17. We have calculated the N(d1) = 0.2877 and N(d2) = 0.2483. The Black model can be used to value the put options by calculating the present value of the difference between the futures price and the exercise price. The futures price should be adjusted by ______.
A. -0.7123
B. -0.2877
C. -0.7517
Explanation: For put options, the futures price should be adjusted by -N(-d1), which is -(1 - 0.2877).

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