Question 1

An option that is in-the-money

Accepted Answer

A)  must have intrinsic value. 
B)  must have time value. 
C)  must have a negative premium. 
D)  must have time value greater than its premium. 
A)  must have intrinsic value. 
B)  must have time value. 
C)  must have a negative premium. 
D)  must have time value greater than its premium.

Question 2

An option premium equals

Accepted Answer

A)  intrinsic value minus time value. 
B)  time value minus intrinsic value. 
C)  time value plus intrinsic value. 
D)  time value. 
A)  intrinsic value minus time value. 
B)  time value minus intrinsic value. 
C)  time value plus intrinsic value. 
D)  time value.

Question 3

The participants in futures trading include only hedgers and speculators.

Accepted Answer

A) True 
 B)False

Question 4

The futures market enables farmers to

Accepted Answer

A)  forego crop insurance. 
B)  largely eliminate price risk. 
C)  protect against a bad crop. 
D)  sell their crop for a higher price. 
A)  forego crop insurance. 
B)  largely eliminate price risk. 
C)  protect against a bad crop. 
D)  sell their crop for a higher price.

Question 5

The most popular stock index futures contract is on the _____ .

Accepted Answer

A)  Dow Jones Industrial Average 
B)  Standard & Poor's 500 index 
C)  Value Line Equity 
D)  Wilkshire 2000 Index 
A)  Dow Jones Industrial Average 
B)  Standard & Poor's 500 index 
C)  Value Line Equity 
D)  Wilkshire 2000 Index

Question 6

An important bond with T-bond futures is the bond that is

Accepted Answer

A)  cheapest to deliver. 
B)  most fungible. 
C)  most recently issued. 
D)  next callable. 
A)  cheapest to deliver. 
B)  most fungible. 
C)  most recently issued. 
D)  next callable.

Question 7

A put option gives its owner

Accepted Answer

A)  the right to buy. 
B)  the right to sell. 
C)  the right to buy or sell. 
D)  the right to buy back shares previously sold. 
A)  the right to buy. 
B)  the right to sell. 
C)  the right to buy or sell. 
D)  the right to buy back shares previously sold.

Question 8

Which of the following is most correct?

Accepted Answer

A)  Options are usually exercised early. 
B)  Options are never exercised early. 
C)  Valuable options are usually sold rather than exercised. 
D)  The option writer decides when and if to exercise. 
A)  Options are usually exercised early. 
B)  Options are never exercised early. 
C)  Valuable options are usually sold rather than exercised. 
D)  The option writer decides when and if to exercise.

Question 9

Futures contracts have a

Accepted Answer

A)  delivery month. 
B)  expiration date. 
C)  fixed settlement date. 
D)  exercise window. 
A)  delivery month. 
B)  expiration date. 
C)  fixed settlement date. 
D)  exercise window.

Question 10

All of the following are derivative market participants except

Accepted Answer

A)  Hedgers 
B)  Marketmakers 
C)  Speculators 
D)  none since all are participants 
A)  Hedgers 
B)  Marketmakers 
C)  Speculators 
D)  none since all are participants

Question 11

There is usually a single Treasury bond issue that is cheapest to deliver.

Accepted Answer

A) True 
 B)False

Question 12

Futures markets provide for the reduction or elimination of price risk.

Accepted Answer

A) True 
 B)False

Question 13

Writers of call options must own the underlying security.

Accepted Answer

A) True 
 B)False

Question 14

The option writer decides when and if to exercise the option.

Accepted Answer

A) True 
 B)False

Question 15

The first U.S. derivatives exchange was the New York Stock Exchange.

Accepted Answer

A) True 
 B)False

Question 16

A European option may only be exercised at its maturity.

Accepted Answer

A) True 
 B)False

Question 17

A corn farmer would buy corn futures to hedge his price risk in corn.

Accepted Answer

A) True 
 B)False

Question 18

Which of the following is false?

Accepted Answer

A)  The option premium is a down payment on the option terms. 
B)  The option premium should never be less than the intrinsic value. 
C)  A call option and a put option with similar terms cannot both be in-the-money at the same time. 
D)  Call premiums and put premiums can both change in value every day. 
A)  The option premium is a down payment on the option terms. 
B)  The option premium should never be less than the intrinsic value. 
C)  A call option and a put option with similar terms cannot both be in-the-money at the same time. 
D)  Call premiums and put premiums can both change in value every day.

Question 19

Accrued interest is part of the invoice price with Treasury bond futures contract delivery.

Accepted Answer

A) True 
 B)False

Question 20

Buying an option as an opening transaction is called writing the option.

Accepted Answer

A) True 
 B)False

Exam 17: Derivative Assets

An option that is in-the-money

An option premium equals

The participants in futures trading include only hedgers and speculators.

The futures market enables farmers to

The most popular stock index futures contract is on the _____ .

An important bond with T-bond futures is the bond that is

A put option gives its owner

Which of the following is most correct?

Futures contracts have a

All of the following are derivative market participants except

There is usually a single Treasury bond issue that is cheapest to deliver.

Futures markets provide for the reduction or elimination of price risk.

Writers of call options must own the underlying security.

The option writer decides when and if to exercise the option.

The first U.S. derivatives exchange was the New York Stock Exchange.

A European option may only be exercised at its maturity.

A corn farmer would buy corn futures to hedge his price risk in corn.

Which of the following is false?

Accrued interest is part of the invoice price with Treasury bond futures contract delivery.

Buying an option as an opening transaction is called writing the option.

Understanding Risk and Return

The Marketplace

Bond Fundamentals

Common Stock

Market Mechanics

Fundamental Stock Analysis

Valuation Tools

Technical Analysis

Market Efficiency

Behavioral Finance

Gathering Investment Information

Market Indexes

Convertible Securities

Investing Internationally

Why Diversify

Managing the Equity Portfolio

Managing the Fixed Income Portfolio

Mortgage-Backed Securities

Investment Companies

Performance Measurement and Presentation

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