Apply trading strategies using futures contracts, especially with regard to the creation of basis risk.

Utilize a financial futures contract to hedge market or interest rate risks.

Be conversant in the basic option terminology and the mechanics of the options markets.

Describe the two reasons options have value, and compute the value for each reason.

Construct a profit function for a person long or short a put or call option.

Describe how the variables used in the Black-Scholes and binomial option pricing models and the put-call parity relationship affect the value of a call option.

Describe how stock index options, interest rate options, and LEAPS® differ from listed puts and calls on common stock.

Explain the advantages and disadvantages of convertibles and compute conversion values and conversion premiums.

Compute the price of a bond, given the discount rate, and the yield to maturity, given the price.

Compute the current yield, the realized compound yield to maturity, the yield to call, and the realized rate of return for a bond.