Question

Each of the following financial instruments is a derivative, except:

A. A fixed interest, five-year note payable
B. Interest rate futures
C. An agreement to buy a piece of equipment in six months at a price determined today
D. A contract to purchase a commodity in six month

Answer 1

A fixed interest, five-year note payable is not a derivative, unlike interest rate futures and contracts to buy equipment or commodities at a future date at today's prices, which are derivatives as their value depends on other assets.

Step-by-step explanation:

In the context of financial instruments, a derivative is a contract whose value is based on the performance of an underlying financial asset, rate, index, or any other financial variable. Among the options provided, A fixed interest, five-year note payable is not considered a derivative. It is a straightforward debt instrument representing money that must be paid back under established conditions, such as a certificate of deposit (CD) or a bond. Conversely, interest rate futures, an agreement to buy a piece of equipment at a predetermined price, and a contract to purchase a commodity in the future are all typical examples of derivatives because their values are derived from the value of other assets.