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1038_1_512-exam1

- Futures and Options Trading in India
- Chap 007
- Lululemon Athletica Class Project
- Case Study Revised
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- derivatives lecture
- 48725186 Derivatives
- Understanding Options - A Reviewer (selected).pdf
- Derivatives Report 1st March 2012
- Future Options
- Supply Chain Contracts
- Option Pricing and Strategies

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capitalization? (Points : 1)

Market value

Open Interest

Trading volume

Notional value

2. Assume that an investor lends 100 shares of Jiffy, Inc. common stock to a short seller.

The bid-ask prices are $32.00 - $32.50. When the position is closed the bid-ask prices are

$32.50 - $33.00. The commission rate is 0.5%. The market interest rate is 5.0% and the

short rebate rate is 3.0%. Calculate the gain or loss to the lender. Assume the lender is

not subject to a bid-ask loss or commissions. (Points : 1)

$164.00 loss

$100.00 gain

$100.00 loss

$164.00 gain

3. During the growing season a corn farmer sells short corn futures contracts in an

amount equal to her crop. If upon harvesting and selling her crop she maintains the

contracts, she is then considered a: (Points : 1)

Speculator

Arbitrager

Hedger

None of the above

4. What kind of risk does not disappear when spread across many investors? (Points : 1)

Diversifiable

Catastrophic

Predictive

Nondiversifiable

5. Who from the following list would be considered a speculator by entering into a

futures or options contract on commodities?(Points : 1)

Corn delivery truck driver

Food manufacturer

Farmer

None of the above

6. Assume that you purchase 100 shares of Jiffy, Inc. common stock at the bid-ask prices

of $32.00 - $32.50. When you sell the bid-ask prices are $32.50 - $33.00. If you pay a

commission rate of 0.5%, what is your profit or loss? (Points : 1)

$32.50 loss

$16.25 loss

$0

$32.50 gain

7. Which of the following is not a derivative instrument? (Points : 1)

Installment sales agreement

Option agreement to buy land

Contract to sell corn

Mortgage backed security

8. According to trading volume data tabulated for 2002, which international futures

exchange market experienced the highest total trading volume in the world? (Points : 1)

Chicago Board of Trade

New York Mercantile Exchange

Eurex

9. All of the following are financially engineered products, except: (Points : 1)

Mortgage backed security

Principal only

Mortgage

Interest only

10. What phrase might be used to describe the initial transaction a short seller initiates

when shorting an equity security? (Points : 1)

Covering

Buy

Sell

Borrow

11. The total number of contracts which exist and are delivery or payment is referred to

as the ___________________. (Points : 1)

Market value

Notional value

Trading volume

Open Interest

12. This measures the number of financial claims that change hands either daily or

annually. (Points : 1)

Open Interest

Notional value

Market value

Trading volume

13. A mutual fund is engaged in the short term and temporary purchase of index futures,

for purposes of minimizing its cash exposures. Which "use" most closely explains their

actions? (Points : 1)

Speculation

Reduced transaction costs

Regulatory arbitrage

Risk management

14. Which of the following phrases is used to describe an option where immediate

exercise results in a negative payoff? (Points : 1)

At-the-money

Near-the-money

In-the-money

Out-of-the-money

15. The premium on a long term call option on the market index with an exercise price

of 950 is $12.00 when originally purchased. After 6 months the position is closed and the

index spot price is 965. If interest rates are 0.5% per month, what is the Call Payoff?

(Points : 1)

$12.00

$15.00

$12.36

$2.64

16. The spot price of the market index is $900. The annual rate of interest on treasuries is

4.8% (0.4% per month). After 3 months the market index is priced at $920. An investor

has a long call option on the index at a strike price of $930. What profit or loss will the

writer of the call option earn if the option premium is $2.00? (Points : 1)

$2.00 loss

$2.00 gain

$2.02 gain

$2.02 loss

17. The spot price of the market index is $900. After 3 months the market index is priced

at $920. The annual rate of interest on treasuries is 4.8% (0.4% per month). The

premium on the long put, with an exercise price of $930, is $8.00. What is the profit or

loss at expiration for the long put? (Points : 1)

$1.90 gain

$1.90 loss

$2.00 gain

$2.00 loss

18. Which type of option is least likely to be exercised? (Points : 1)

In-the-money

Near-the-money

Out-of-the-money

At-the-money

19. The spot price of the market index is $900. A 3-month forward contract on this index

is priced at $930. The market index rises to $920 by the expiration date. The annual rate

of interest on treasuries is 4.8% (0.4% per month). What is the difference in the payoffs

between a long index investment and a long forward contract investment? (Assume

monthly compounding) (Points : 1)

$19.16

$26.40

$43.20

$10.84

20. The spot price of the market index is $900. After 3 months the market index is priced

at $920. The annual rate of interest on treasuries is 4.8% (0.4% per month). The

premium on the long put, with an exercise price of $930, is $8.00. At what index price

does a long put investor have the same payoff as a short index investor? Assume the

short position has a breakeven price of $930. (Points : 1)

$940.00

$938.10

$930.00

$921.90

21. What term may be used to describe a long put position in which the exercise price is

below the asset price? (Points : 1)

At-the-money

Out-of-the-money

In-the-money

Near-the-money

22. The spot price of the market index is $900. A 3-month forward contract on this index

is priced at $930. The annual rate of interest on treasuries is 4.8% (0.4% per month).

What annualized rate of interest makes the net payoff zero? (Assume monthly

compounding) (Points : 1)

11.2%

13.2%

8.5%

4.8%

23. A put option if purchased and held for 1 year. The exercise price on the underlying

asset is $40. If the current price of the asset is $36.45 and the future value of the original

option premium is (- $1.62 ), what is the put profit, if any at the end of the year? (Points :

1)

$1.62

$5.17

$1.93

$3.55

24. The premium on a call option on the market index with an exercise price of 1050 is

$9.30 when originally purchased. After 2 months the position is closed and the index

spot price is 1072. If interest rates are 0.5% per month, what is the Call Profit? (Points :

1)

$12.61

$9.30

$9.39

$22.00

25. The spot price of the market index is $900. A 3-month forward contract on this index

is priced at $930. What is the profit or loss to a short position if the spot price of the

market index rises to $920 by the expiration date? (Points : 1)

$20 loss

$10 gain

$20 gain

$10 loss

26. Which strike price is reflective of an out-of- the-money long call with an asset price

of $34? (Points : 1)

$36

$32

$34

$38

27. Which of the following phrases is used to describe an option where immediate

exercise results in a positive payoff? (Points : 1)

Near-the-money

Out-of-the-money

At-the-money

In-the-money

28. The spot price of the market index is $900. After 3 months the market index is priced

at $920. The annual rate of interest on treasuries is 4.8% (0.4% per month). The

premium on the long put, with an exercise price of $930, is $8.00. Calculate the profit or

loss to the short put position if the final index price is $915. (Points : 1)

$15.00 loss

$6.90 gain

$6.90 loss

$15.00 gain

29. What strategy is an investor most likely to employ to insure against the losses

associated with a straddle write? (Points : 1)

Ratio call write

Butterfly spread

Bull spread

Strangle

30. Which strategy is a bet that the actual volatility of an asset is low relative to the

market's assessment? (Points : 1)

Written straddle

Purchased straddle

Long Call

Long Put

31. What strategy is an investor most likely to employ to reduce the high premium cost

associated with a strangle strategy?(Points : 1)

Bull spread

Butterfly spread

Strangle

Ratio call write

32. A strategy consists of buying a market index product at $830 and longing a put on

the index with a strike of $830. If the put premium is $18.00 and interest rates are 0.5%

per month, compute the profit or loss from the long put position by itself (in 6 months) if

the market index is $810. (Points : 1)

$1.36 loss

$3.45 gain

$1.45 gain

$2.80 loss

33. A strategy consists of buying a market index product at $830 and longing a put on

the index with a strike of $830. If the put premium is $18.00 and interest rates are 0.5%

per month, compute the profit or loss from the long index position by itself expiration (in

6 months) if the market index is $810. (Points : 1)

$18.00 gain

$45.21 loss

$21.22 loss

$24.25 gain

34. What is the maximum profit that an investor can obtain from a strategy employing a

long 830 call and a short 850 call over 6 months? Interest rates are 0.5% per

month. (Points : 1)

$12.32

$6.80

$9.24

$7.68

35. What is the maximum loss that an investor can obtain over 6 months from a strategy

employing a long 830 call and a short 850 call? Interest rates are 0.5% per

month. (Points : 1)

$12.32

$7.68

$9.24

$6.80

36. Which of the following strategies represents a purchased put and a written call for

which the premiums are equal? (Points : 1)

Ratio call write

Butterfly spread

Bull spread

Strangle

37. A strategy consists of buying a market index product at $830 and longing a put on

the index with a strike of $830. If the put premium is $18.00 and interest rates are 0.5%

per month, what is the profit or loss at expiration (in 6 months) if the market index is

$810? (Points : 1)

$18.65 gain

$20.00 gain

$36.29 loss

$43.76 loss

38. A strategy consists of buying a market index product at $830 and longing a put on

the index with a strike of $830. If the put premium is $18.00 and interest rates are 0.5%

per month, what is the estimated price of a call option with an exercise price of

$830? (Points : 1)

$49.55

$47.67

$42.47

$45.26

39. At the 6-month point, what is the breakeven index price for a strategy of longing the

market index at a price of 830? Interest rates are 0.5% per month. (Points : 1)

$855.21

$830.00

$866.32

$802.12

40. A strategy consists of longing a put on the market index with a strike of 830 and

shorting a call option on the market index with a strike price of 830. The put premium is

$18.00 and the call premium is $44.00. Interest rates are 0.5% per month. What is the

breakeven price of the market index for this strategy at expiration (in 6

months)? (Points : 1)

$830.00

$866.32

$855.21

$802.12

41. A position in which you buy a call and sell an otherwise identical call with a higher

strike price is called a ________. (Points : 1)

Butterfly spread

Ratio call write

Bull spread

Strangle

42. The $850 strike put premium is $25.45 and the $850 strike call is selling for $30.51.

Calculate the breakeven index price for a strategy employing a short call and long put

that expires in 6 months. Interest rates are 0.5% per month. (Points : 1)

$822.67

$824.79

$875.82

$830.76

43. What is the break even point that an investor can obtain from a 6-month strategy

employing a long 830 call and a short 850 call? Interest rates are 0.5% per

month. (Points : 1)

$832.82

$852.22

$862.92

$842.32

44. Which of the following strategies is the appropriate one if you have no view on the

stock-price direction and you think volatility will fall? (Points : 1)

Buying puts

Selling the underlying

Buying calls

Writing a straddle

45. An investor purchases a call option with an exercise price of $55 for $2.60. The same

investor sells a call on the same security with an exercise price of $60 for $1.40. At

expiration, 3 months later, the stock price is $56.75. All other things being equal and

given an annual interest rate of 4.0%, what is the net profit or loss to the

investor? (Points : 1)

$0.54 gain

$1.21 loss

$1.50 loss

$1.65 gain

46. Which of the following strategies is the appropriate one if you are bullish about the

stock-price direction and you think volatility will increase? (Points : 1)

Buying puts

Buying calls

Buying straddle

47. As a writer of a straddle position, how would you insure against large losses? (Points

: 1)

Buying an out-of-the-money put and buying an out-of-the-money call

Buying an in-the-money put and selling an out-of-the-money call

Selling an out-of-the-money put and buying an in-the-money call

Selling an out-of-the-money put and selling an out-of-the-money call

48. An insured asset position is equivalent to: (Points : 1)

-Zero-coupon bond - call

-Zero-coupon bond + put

Zero-coupon bond - put

Zero-coupon bond + call

49. Which of the following strategies is not a volatility play? (Points : 1)

Straddle

Strangle

Bull spread

Butterfly spread

50. Assume that you open a 100 share short position in Jiffy, Inc. common stock at the

bid-ask prices of $32.00 - $32.50. When you close your position the bid-ask prices are

$32.50 - $33.00. You pay a commission rate of 0.5%. The market interest rate is 5.0%

and the short rebate rate is 3.0%. What is your additional gain or loss due to leasing the

asset? (Points : 1)

$96 gain

$160 loss

$64 loss

$64 gain

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