Question 1

The chapter example generated additional income using

Accepted Answer

A)  equity calls 
B)  equity puts 
C)  index calls 
D)  index puts 
A)  equity calls 
B)  equity puts 
C)  index calls 
D)  index puts C

Question 2

Constructing a stock portfolio that meets set constraints can be accomplished via

Accepted Answer

A)  linear programming 
B)  calculation of the economic order quantity 
C)  finding the net present value 
D)  duration matching 
A)  linear programming 
B)  calculation of the economic order quantity 
C)  finding the net present value 
D)  duration matching A

Question 3

Suppose you are managing a stock portfolio with a current market value of $3.7 million and a portfolio beta of 1.465. You would like to write 20 call options against the portfolio using July 580 OEX 100 index call options that have a premium of $7.30 and a delta of 0.651. The S&P 100 index closed at 541.86. You also have used the Black Scholes model to calculate that the delta of an at-the-money call option is 0.515. How many at-the-money contracts of the index are equivalent to your portfolio?

Accepted Answer

A)  80 contracts 
B)  100 contracts 
C)  120 contracts 
D)  140 contracts 
A)  80 contracts 
B)  100 contracts 
C)  120 contracts 
D)  140 contracts B

Question 4

A futures option pricing model is the

Accepted Answer

A)  Miller model 
B)  Chance model 
C)  White model 
D)  Black model 
A)  Miller model 
B)  Chance model 
C)  White model 
D)  Black model

Question 5

Which of the following is not necessary in calculating a Treasury bond hedge ratio?

Accepted Answer

A)  The portfolio yield to maturity 
B)  The portfolio duration 
C)  The duration of the cheapest to deliver bond 
D)  The adjustment factor 
A)  The portfolio yield to maturity 
B)  The portfolio duration 
C)  The duration of the cheapest to deliver bond 
D)  The adjustment factor

Question 6

Writing calls will always _____ a portfolio's _____.

Accepted Answer

A)  reduce, beta 
B)  increase, beta 
C)  reduce, duration 
D)  increase, duration 
A)  reduce, beta 
B)  increase, beta 
C)  reduce, duration 
D)  increase, duration

Question 7

Hedging company-specific risk is best done using

Accepted Answer

A)  index puts 
B)  index calls 
C)  equity calls 
D)  equity puts 
A)  index puts 
B)  index calls 
C)  equity calls 
D)  equity puts

Question 8

Suppose you are managing a stock portfolio with a current market value of $3.7 million and a portfolio beta of 1.465. You would like to write 20 call options against the portfolio using July 580 OEX 100 index call options that have a premium of $7.30 and a delta of 0.651. The S&P 100 index closed at 541.86. You also have used the Black Scholes model to calculate that the delta of an at-the-money call option is 0.515. What would be the beta of your portfolio after writing 20 July 580 OEX index call options?

Accepted Answer

A)  0.895 
B)  1.095 
C)  1.295 
D)  1.695 
A)  0.895 
B)  1.095 
C)  1.295 
D)  1.695

Question 9

Implied volatility is a(n)

Accepted Answer

A)  estimated statistic 
B)  catchall statistic 
C)  independent variable 
D)  binomial variable 
A)  estimated statistic 
B)  catchall statistic 
C)  independent variable 
D)  binomial variable

Question 10

A portfolio has a position delta of 1,250 and a beta of 1.15. If you write calls against it such that the position delta falls to 500, what is the approximate new portfolio beta?

Accepted Answer

A)  0.46 
B)  0.55 
C)  1.05 
D)  1.15; beta will not change 
A)  0.46 
B)  0.55 
C)  1.05 
D)  1.15; beta will not change

Question 11

If you use index calls to generate additional income in a stock portfolio, which of the following statements is true?

Accepted Answer

A)  Regardless of the portfolio size, the income that can be generated with index calls is fixed and known 
B)  The higher the striking price, the greater the number of options you can write 
C)  The lower the striking price, the greater the number of options you can write 
D)  Writing index options eliminates the downside risk of a portfolio 
A)  Regardless of the portfolio size, the income that can be generated with index calls is fixed and known 
B)  The higher the striking price, the greater the number of options you can write 
C)  The lower the striking price, the greater the number of options you can write 
D)  Writing index options eliminates the downside risk of a portfolio

Question 12

The chapter showed an example of using which mathematical technique in determining the number of puts and calls to use in a particular application?

Accepted Answer

A)  Differential equations 
B)  Calculus 
C)  Simultaneous equations 
D)  Imaginary numbers 
A)  Differential equations 
B)  Calculus 
C)  Simultaneous equations 
D)  Imaginary numbers

The chapter example generated additional income using

Constructing a stock portfolio that meets set constraints can be accomplished via

A futures option pricing model is the

Which of the following is not necessary in calculating a Treasury bond hedge ratio?

Writing calls will always _ a portfolio's _.

Hedging company-specific risk is best done using

Implied volatility is a(n)

A portfolio has a position delta of 1,250 and a beta of 1.15. If you write calls against it such that the position delta falls to 500, what is the approximate new portfolio beta?

If you use index calls to generate additional income in a stock portfolio, which of the following statements is true?

The chapter showed an example of using which mathematical technique in determining the number of puts and calls to use in a particular application?

The Process of Portfolio Management

Valuation, Risk, Return, and Uncertainty

Setting Portfolio Objectives

Investment Policy

The Mathematics of Diversification

Why Diversification Is a Good Idea

International Investment and Diversification

The Capital Markets and Market Efficiency

Picking the Equity Players

Equity Valuation Tools

Security Screening

Bond Pricing and Selection

The Role of Real Assets

Alternative Assets

Revision of the Equity Portfolio

Revision of the Fixed-Income Portfolio

Principles of Options and Option Pricing

Option Overwriting

Performance Evaluation

Fiduciary Duties and Responsibilities

Principles of the Futures Market

Benching the Equity Players

Removing Interest Rate Risk

Contemporary Issues in Portfolio Management

Filters

Exam 24: Integrating Derivative Assets and Portfolio Management

The chapter example generated additional income using

Constructing a stock portfolio that meets set constraints can be accomplished via

A futures option pricing model is the

Which of the following is not necessary in calculating a Treasury bond hedge ratio?

Writing calls will always _____ a portfolio's _____.

Hedging company-specific risk is best done using

Implied volatility is a(n)

A portfolio has a position delta of 1,250 and a beta of 1.15. If you write calls against it such that the position delta falls to 500, what is the approximate new portfolio beta?

If you use index calls to generate additional income in a stock portfolio, which of the following statements is true?

The chapter showed an example of using which mathematical technique in determining the number of puts and calls to use in a particular application?

The Process of Portfolio Management

Valuation, Risk, Return, and Uncertainty

Setting Portfolio Objectives

Investment Policy

The Mathematics of Diversification

Why Diversification Is a Good Idea

International Investment and Diversification

The Capital Markets and Market Efficiency

Picking the Equity Players

Equity Valuation Tools

Security Screening

Bond Pricing and Selection

The Role of Real Assets

Alternative Assets

Revision of the Equity Portfolio

Revision of the Fixed-Income Portfolio

Principles of Options and Option Pricing

Option Overwriting

Performance Evaluation

Fiduciary Duties and Responsibilities

Principles of the Futures Market

Benching the Equity Players

Removing Interest Rate Risk

Contemporary Issues in Portfolio Management

Filters

Writing calls will always _ a portfolio's _.