Derivatives

Pricing and Valuation of Forward Contracts and for an Underlying with Varying Maturities practice questions

Pricing and Valuation of Forward Contracts and for an Underlying with Varying Maturities is part of CFA Level I Derivatives. Derivatives questions cover forwards, futures, swaps, options, replication logic, payoffs, and risk-transfer mechanics. Use this page to review the controlling ideas, then work through 6 questions with answer explanations and common traps.

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Identify the rule, formula, or decision criterion before reading the answer choices. CFA Level I distractors often use the right vocabulary with the wrong condition.

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Work each item under time pressure, then compare your reasoning with the step-by-step explanation and key takeaway.

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Missed questions should become scheduled reviews when the error comes from a concept gap, formula setup, or answer-choice trap.

Easy

Derivatives

Pricing and Valuation of Forward Contracts and for an Underlying with Varying Maturities

A forward contract is initiated today at the no-arbitrage forward price, and no money changes hands. At initiation, the value of the contract to the long is most likely:

Moderate

Derivatives

Pricing and Valuation of Forward Contracts and for an Underlying with Varying Maturities

A company plans to borrow for six months beginning in three months and takes a long position in a forward rate agreement (FRA) to hedge the exposure. At the FRA's expiration in three months, the market reference rate sets above the FRA fixed rate. The company most likely:

Moderate

Derivatives

Pricing and Valuation of Forward Contracts and for an Underlying with Varying Maturities

The spot exchange rate is USD 1.1000 per EUR 1. The one-year risk-free rate is 6.0% in USD and 1.0% in EUR, both with annual compounding. The no-arbitrage one-year forward exchange rate, in USD per EUR, is closest to:

Moderate

Derivatives

Pricing and Valuation of Forward Contracts and for an Underlying with Varying Maturities

A forward contract on a non-income-producing asset was initiated at a forward price of USD 92.00. With three months remaining to expiration, the asset's spot price is USD 87.50, and the annual risk-free rate is 4.0% with annual compounding. The value of the contract to the short is closest to:

Difficult

Derivatives

Pricing and Valuation of Forward Contracts and for an Underlying with Varying Maturities

Nine months ago, an investor took a long position in a one-year forward contract on a dividend-paying stock at a forward price of USD 118.00. The stock now trades at USD 121.00 and will pay a single dividend of USD 1.00 immediately before the contract expires in three months. The annual risk-free rate is 5.0% with annual compounding. The current value of the forward contract to the long is closest to:

Difficult

Derivatives

Pricing and Valuation of Forward Contracts and for an Underlying with Varying Maturities

An equity index stands at 3,600.00. Index constituents are expected to pay dividends with a value of 36.00 index points as of the expiration of a six-month forward contract on the index. The annual risk-free rate is 4.0% with annual compounding. The no-arbitrage six-month forward price of the index is closest to: