NISM V-D Exchange Traded Interest Rate Options — Practice Questions
Questions on exchange-traded interest rate options — contract design, pricing and the relationship between yields, bond prices and option values.
25 questions on Interest Rate Options in the ScoreSetu bank — each with a detailed explanation and, where useful, a memory hook.
What this topic covers
- Contract design
- Pricing of interest rate options
- Yields, prices and option values
- Settlement
Free sample questions
1. What is the net payoff in rupees for Ms. Smita, who purchased a Rs 21.50 strike call option for Rs 0.20, if the underlying bond price closes at Rs 21.70 on the expiry date?
- A. 0.20
- B. 0.40
- C. -0.20
- D. 0 ✅
Answer: D — 0
Why: Since the expiry price (Rs. 21.70) > strike price (Rs. 21.50), the call option is in-the-money and will be exercised. Lets calculate Gross Payoff from Exercise Gross Payoff = Expiry Price – Strike Price 21.70 − 21.50 = Rs. 0.20 To get the net pay-off, we subtract the premium paid of Rs. 0.20 Net Payoff = Gross Payoff – Premium 0.20 − 0.20 = 0
💡 Call net payoff = (spot-strike) - premium; 0.20-0.20 = 0 (breakeven).
2. Option time value is ________ proportional to its time until expiration.
- A. Inversely
- B. Directly ✅
- C. Directly for Put option only
- D. Directly for Call option only
Answer: B — Directly
Why: The time value of an option is the portion of the option's premium that is attributed to the time remaining until expiration. Longer time to expiration - Higher is the time value As the expiration date approaches, the time value decays, eventually becoming zero at expiry. This relationship holds true for both Call and Put options.
💡 Option time value is DIRECTLY proportional to time left; decays to 0 at expiry.
3. The payment an option buyer makes to secure the right from the seller is known as _________ .
- A. Strike Price
- B. Market Price
- C. Agreed Price
- D. Premium ✅
Answer: D — Premium
Why: In options trading, the option buyer pays a PREMIUM to the option seller (writer) to acquire the right, but not the obligation, to buy or sell the underlying asset at a specified price (the strike price) before or at expiry.
💡 PREMIUM = price the option buyer pays the seller to secure the right.
Practise all 25 Interest Rate Options questions
Plus the full 853-question NISM V-D bank and real-feel mock exams.
Other NISM V-D topics
Investment LandscapeConcept & Role of Mutual FundsLegal StructureLegal & RegulatoryScheme Related InformationDistribution & ChannelsNAV, TER & PricingTaxationInvestor ServicesRisk, Return & PerformanceScheme PerformanceScheme SelectionBasics of DerivativesUnderstanding the IndexForwards & FuturesOptionsEquity Derivative StrategiesInterest Rates & Fixed IncomeInterest Rate DerivativesInterest Rate FuturesInterest Rate Strategies