Question 1

In the forward market both parties are required to post collateral or margin.

Accepted Answer

A) True 
 B)False

Question 2

The value of a call option just prior to expiration is (where V is the underlying asset's market price and X is the option's exercise price)

Accepted Answer

A) Max [0, V - X] 
B) Max [0, X - V] 
C) Min [0, V - X] 
D) Min [0, X - V] 
E) Max [0, V > X] 
A) Max [0, V - X] 
B) Max [0, X - V] 
C) Min [0, V - X] 
D) Min [0, X - V] 
E) Max [0, V > X]

Question 3

A forward contract is similar to an option contract because they both

Accepted Answer

A) Can provide insurance against the price of the underlying stock 
B) Are paid for up front in the form of premiums 
C) Are paid for at the end of the contract in the form of premiums 
D) Require a future settlement payment 
E) None of the above 
A) Can provide insurance against the price of the underlying stock 
B) Are paid for up front in the form of premiums 
C) Are paid for at the end of the contract in the form of premiums 
D) Require a future settlement payment 
E) None of the above

Question 4

A call option differs from a put option in that

Accepted Answer

A) a call option obliges the investor to purchase a given number of shares in a specific common stock at a set price; a put obliges the investor to sell a certain number of shares in a common stock at a set price. 
B) both give the investor the opportunity to participate in stock market dealings without the risk of actual stock ownership. 
C) a call option gives the investor the right to purchase a given number of shares of a specified stock at a set price; a put option gives the investor the right to sell a given number of shares of a stock at a set price. 
D) a put option has risk, since leverage is not as great as with a call. 
E) none of the above 
A) a call option obliges the investor to purchase a given number of shares in a specific common stock at a set price; a put obliges the investor to sell a certain number of shares in a common stock at a set price. 
B) both give the investor the opportunity to participate in stock market dealings without the risk of actual stock ownership. 
C) a call option gives the investor the right to purchase a given number of shares of a specified stock at a set price; a put option gives the investor the right to sell a given number of shares of a stock at a set price. 
D) a put option has risk, since leverage is not as great as with a call. 
E) none of the above

Question 5

The price at which a futures contract is set at the end of the day is the

Accepted Answer

A) Stock price. 
B) Strike price. 
C) Maintenance price. 
D) Settlement price. 
E) Parity price. 
A) Stock price. 
B) Strike price. 
C) Maintenance price. 
D) Settlement price. 
E) Parity price.

Question 6

The payoffs to both long and short position in the forward contact are symmetric around the contract price.

Accepted Answer

A) True 
 B)False

Question 7

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 for $25. January call options with a strike price of $30 sell for $6. The appropriate risk free bond has a price of $30. Calculate the price of the January put option.

Accepted Answer

A) $11 
B) $24 
C) $19 
D) $30 
E) $25 
A) $11 
B) $24 
C) $19 
D) $30 
E) $25

Question 8

The futures market is a dealer market where all the details of the transactions are negotiated.

Accepted Answer

A) True 
 B)False

In the forward market both parties are required to post collateral or margin.

The value of a call option just prior to expiration is (where V is the underlying asset's market price and X is the option's exercise price)

A forward contract is similar to an option contract because they both

A call option differs from a put option in that

The price at which a futures contract is set at the end of the day is the

The payoffs to both long and short position in the forward contact are symmetric around the contract price.

The futures market is a dealer market where all the details of the transactions are negotiated.

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

Filters

Exam 20: An Introduction to Derivative Markets and Securities

In the forward market both parties are required to post collateral or margin.

The value of a call option just prior to expiration is (where V is the underlying asset's market price and X is the option's exercise price)

A forward contract is similar to an option contract because they both

A call option differs from a put option in that

The price at which a futures contract is set at the end of the day is the

The payoffs to both long and short position in the forward contact are symmetric around the contract price.

The futures market is a dealer market where all the details of the transactions are negotiated.

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

Filters