Exam 20: An Introduction to Derivative Markets and Securities

Exhibit 21.12 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) Suppose you are a loan officer for a commercial bank and one of your clients has just approached you about a one-year loan for $4,000,000. Interest on the new loan will be paid at the end of each quarter based on the prevailing level of LIBOR at the beginning of each quarter. The LIBOR yield curve in the cash market is as follows: -The forward market has low liquidity relative to the futures market.

(True/False)

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Question 81

The minimum value of an option is zero.

(True/False)

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Question 82

Exhibit 20.6 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) The current stock price of ABC Corporation is $53.50. ABC Corporation has the following put and call option prices that expire 6 months from today. The risk-free rate of return is 5% and the expected return on the market is 11%. -You own a call option and put option that both have the same exercise price of $50 and their respective prices are $4 and $3. The stock is currently trading at $60. Calculate the dollar return on this strategy.

(Multiple Choice)

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Question 83

Exhibit 20.1 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) December futures on the S&P 500 stock index trade at 250 times the index value of 1187.70. Your broker requires an initial margin of 10% percent on futures contracts. The current value of the S&P 500 stock index is 1178. -Refer to Exhibit 20.1. Calculate the return on a cash investment in the S&P 500 stock index if the ending index value is 1170 over the same time period.

(Multiple Choice)

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Question 84

A one year call option has a strike price of 60, expires in 6 months, and has a price of $2.5. If the risk free rate is 7%, and the current stock price is $55, what should the corresponding put be worth?

(Multiple Choice)

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Question 85

Exhibit 20.5 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) Sarah Kling bought a 6-month Peppy Cola put option with an exercise price of $55 for a premium of $8.25 when Peppy was selling for $48.00 per share. -Refer to Exhibit 20.5. What is Sarah's annualized gain/loss?

(Multiple Choice)

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Question 86

If an investor wants to acquire the right to buy or sell an asset, but not the obligation to do it, the best instrument is an option rather than a futures contract.

(True/False)

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Question 87

The payoffs diagrams to both long and short positions in a forward contract are asymmetrical around the contract price.

(True/False)

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Question 88

Exhibit 20.5 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) Sarah Kling bought a 6-month Peppy Cola put option with an exercise price of $55 for a premium of $8.25 when Peppy was selling for $48.00 per share. -A stock currently trades at $110. June put options on the stock with a strike price of $100 are priced at $5.25. Calculate the dollar return on one put contract.

(Multiple Choice)

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Question 89

Exhibit 20.2 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) A futures contract on Treasury bond futures with a December expiration date currently trade at 103:06. The face value of a Treasury bond futures contract is $100,000. Your broker requires an initial margin of 10%. -Refer to Exhibit 20.2. Calculate the initial margin deposit.

(Multiple Choice)

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Question 90

Consider a stock that is currently trading at $10. Calculate the intrinsic value for a call option that has an exercise price of $15.

(Multiple Choice)

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Question 91

The price paid for the option contract is referred to as the

(Multiple Choice)

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Question 92

A vertical spread involves buying and selling call options in the same stock with

(Multiple Choice)

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Question 93

Exhibit 20.7 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) The current stock price of Zanco Corporation is $50. Zanco Corporation has the following put and call option prices with exercise prices at $45 and $50. -Refer to Exhibit 20.7. The intrinsic value for the put option with a $50 exercise price is

(Multiple Choice)

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Question 94

The cost of carry includes all of the following except

(Multiple Choice)

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Question 95

There are a number of differences between forward and futures contracts. Which of the following statements is false?

(Multiple Choice)

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Question 96

Futures contracts are slower to absorb new information than forward contracts.

(True/False)

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Question 97

A put option is in the money if the current market price is above the strike price.

(True/False)

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Question 98

An option to sell an asset is referred to as a call, whereas an option to buy an asset is called a put.

(True/False)

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Question 99

You own a stock that has risen from $10 per share to $32 per share. You wish to delay taking the profit but you are troubled about the short run behavior of the stock market. An effective action on your part would be to

(Multiple Choice)

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Question 100

Showing 81 - 100 of 108

The minimum value of an option is zero.

A one year call option has a strike price of 60, expires in 6 months, and has a price of $2.5. If the risk free rate is 7%, and the current stock price is $55, what should the corresponding put be worth?

Exhibit 20.5 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) Sarah Kling bought a 6-month Peppy Cola put option with an exercise price of $55 for a premium of $8.25 when Peppy was selling for $48.00 per share. -Refer to Exhibit 20.5. What is Sarah's annualized gain/loss?

If an investor wants to acquire the right to buy or sell an asset, but not the obligation to do it, the best instrument is an option rather than a futures contract.

The payoffs diagrams to both long and short positions in a forward contract are asymmetrical around the contract price.

Consider a stock that is currently trading at $10. Calculate the intrinsic value for a call option that has an exercise price of $15.

The price paid for the option contract is referred to as the

A vertical spread involves buying and selling call options in the same stock with

The cost of carry includes all of the following except

There are a number of differences between forward and futures contracts. Which of the following statements is false?

Futures contracts are slower to absorb new information than forward contracts.

A put option is in the money if the current market price is above the strike price.

An option to sell an asset is referred to as a call, whereas an option to buy an asset is called a put.

You own a stock that has risen from $10 per share to $32 per share. You wish to delay taking the profit but you are troubled about the short run behavior of the stock market. An effective action on your part would be to

The Investment Setting

The Asset Allocation Decision

Selecting Investments in a Global Market

Organization and Functioning of Securities Markets

Security-Market Indexes

Efficient Capital Markets

An Introduction to Portfolio Management

An Introduction to Asset Pricing Models

Multifactor Models of Risk and Return

Analysis of Financial Statements

Introduction to Security Valuation

Macroanalysis and Microvaluation of the Stock Market

Industry Analysis

Company Analysis and Stock Valuation

Technical Analysis

Equity Portfolio Management Strategies

Bond Fundamentals

The Analysis and Valuation of Bonds

Bond Portfolio Management Strategies

Forward and Futures Contracts

Option Contracts

Swap Contracts, Convertible Securities, and Other Embedded Derivatives

Professional Money Management, Alternative Assets, and Industry Ethics

Evaluation of Portfolio Performance

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