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Fnce 423: Futures And Options Question Paper

Fnce 423: Futures And Options

Course:Bachelor Of Commerce

Institution: Kabarak University question papers

Exam Year:2013

KABARAK
UNIVERSITY
UNIVERSITY EXAMINATIONS
2012/2013 ACADEMIC YEAR
FOR THE DEGREE OF BACHELOR OF COMMERCE

FNCE 423: OPTIONS AND FUTURES MARKETS
DAY: THURSDAY

DATE: 11/04/2013
TIME: 8.00 – 11.00 A.M.

STREAM: Y4S2
INSTRUCTIONS:
Time Allowed; 2 Hours
? Answer Question One and any other Two Questions
? Show all your workings
? Be neat; untidy work will be penalized
Attachments; the standard normal distribution tables
Question One;
a. Explain the evolution of options trading in the World

(10 Marks)
b. How are the forwards and swaps applied in doing business in the developing countries?

(10 Marks)
c. Explain the key features of derivatives

(5 Marks)

Question Two
a. Explain the key differences between futures and forwards

(8 Marks)
b. Discuss the process of futures trading

(7 Marks)
Question Three
You are provided with the following information about a security, Y. the current market price is
Ksh 30. The standard deviation of the security stands at 0.76, while the securities time to
maturity is 4 months. The cost of capital stands at 15% and the strike price has been agreed at
Ksh. 35
Required;
a. Determine the value of the call option

(6 Marks)
b. Holding all other factors constant, what would be the value of the call option if the
following variables were adjusted;
i.
The standard deviation was adjusted to 0.5

(3 Marks)
ii.
The time to maturity was increased to 6 months

(3 Marks)
iii.
Apart from the above factors, what other factors affect the value of an option?

(3 Marks)
Question Four;
a. Explain in details the application areas of derivatives trading in Kenya
(7 Marks)
b. Discuss four option management strategies

(8 Marks)

Fnce 423: Futures And Options Question Paper

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