Question 1

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

Accepted Answer

A)  Futures have less liquidity risk than forward contracts. 
B)  Futures have less credit risk than forward contracts. 
C)  Futures have more default risk than forward contracts. 
D)  In futures, the exchange becomes the counterparty to all transactions. 
E)  None of the above (that is, all statements are true) 
A)  Futures have less liquidity risk than forward contracts. 
B)  Futures have less credit risk than forward contracts. 
C)  Futures have more default risk than forward contracts. 
D)  In futures, the exchange becomes the counterparty to all transactions. 
E)  None of the above (that is, all statements are true)

Question 2

Investors buy call options because they expect the price of the underlying stock to increase before the expiration of the option.

Accepted Answer

A) True 
 B)False

Question 3

Exhibit 20.4
Use the Information Below for the Following Problem(S)
Rick Thompson is considering the following alternatives for investing in Davis Industries which is now selling for $44 per share:
 (1) Buy 500 shares, and
(2) Buy six month call options with mexercise price of 45 for $\$ 3.25$ premium
-Tom Gettback buys 100 shares of Johnson Walker stock for $87.00 per share and a 3-month Johnson Walker put option with an exercise price of $105.00 for $20.00.What is Tom's dollar gain/loss if at expiration the stock is selling for $105.00 per share?

Accepted Answer

A)  $1000 gain 
B)  $200 loss 
C)  $1000 loss 
D)  $200 gain 
E)  None of the above 
A)  $1000 gain 
B)  $200 loss 
C)  $1000 loss 
D)  $200 gain 
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

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

Accepted Answer

A) True 
 B)False

Question 6

Exhibit 20.4
Use the Information Below for the Following Problem(S)
Rick Thompson is considering the following alternatives for investing in Davis Industries which is now selling for $44 per share:
 (1) Buy 500 shares, and
(2) Buy six month call options with mexercise price of 45 for $\$ 3.25$ premium
-Refer to Exhibit 20.4.Assuming no commissions or taxes what is the annualized percentage gain if the stock reaches $50 in four months and a call was purchased?

Accepted Answer

A)  161.54% gain 
B)  53.85% gain 
C)  161.54% loss 
D)  11.11% gain 
E)  53.85% loss 
A)  161.54% gain 
B)  53.85% gain 
C)  161.54% loss 
D)  11.11% gain 
E)  53.85% loss

Question 7

Which of the following statements is a true definition of an in-the-money option?

Accepted Answer

A)  A call option in which the stock price exceeds the exercise price. 
B)  A call option in which the exercise price exceeds the stock price. 
C)  A put option in which the stock price exceeds the exercise price. 
D)  An index option in which the exercise price exceeds the stock price. 
E)  A call option in which the call premium exceeds the stock price. 
A)  A call option in which the stock price exceeds the exercise price. 
B)  A call option in which the exercise price exceeds the stock price. 
C)  A put option in which the stock price exceeds the exercise price. 
D)  An index option in which the exercise price exceeds the stock price. 
E)  A call option in which the call premium exceeds the stock price.

Question 8

Investment costs are generally higher in the derivative markets than in the corresponding cash markets.

Accepted Answer

A) True 
 B)False

Question 9

An advantage of a forward contract over a futures contract is that

Accepted Answer

A)  The terms of the contract are flexible 
B)  It is more liquid 
C)  It trades through a centralized market exchange 
D)  It is easier to unwind due to contract homogeneity 
E)  None of the above 
A)  The terms of the contract are flexible 
B)  It is more liquid 
C)  It trades through a centralized market exchange 
D)  It is easier to unwind due to contract homogeneity 
E)  None of the above

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

Investors buy call options because they expect the price of the underlying stock to increase before the expiration of the option.

A call option differs from a put option in that

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

Which of the following statements is a true definition of an in-the-money option?

Investment costs are generally higher in the derivative markets than in the corresponding cash markets.

An advantage of a forward contract over a futures contract is that

An Overview of the Investment Process

The Asset Allocation Decision

The Global Market Investment Decision

Securities Markets: Organization and Operation

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

Security Valuation Principles

Macroanalysis and Microvaluation of the Stock Market

Industry Analysis

Company Analysis and Stock Valuation

Equity Portfolio Management Stragtegies

Technical Analysis

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

Investment Return and Risk Analysis Questions

Investment and Retirement Plans

Calculating Covariance and Correlation Coefficient of Assets

Portfolio Variance and Stock Weight Calculations

Portfolio Optimization with Negative Correlation: Finding Minimum Variance and Weight Allocation

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Exam 20: An Introduction to Derivative Markets and Securities

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

Investors buy call options because they expect the price of the underlying stock to increase before the expiration of the option.

A call option differs from a put option in that

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

Which of the following statements is a true definition of an in-the-money option?

Investment costs are generally higher in the derivative markets than in the corresponding cash markets.

An advantage of a forward contract over a futures contract is that

An Overview of the Investment Process

The Asset Allocation Decision

The Global Market Investment Decision

Securities Markets: Organization and Operation

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

Security Valuation Principles

Macroanalysis and Microvaluation of the Stock Market

Industry Analysis

Company Analysis and Stock Valuation

Equity Portfolio Management Stragtegies

Technical Analysis

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

Investment Return and Risk Analysis Questions

Investment and Retirement Plans

Calculating Covariance and Correlation Coefficient of Assets

Portfolio Variance and Stock Weight Calculations

Portfolio Optimization with Negative Correlation: Finding Minimum Variance and Weight Allocation

Filters