Question 1

The S&P 100 Index is composed of 100 blue chip stocks on which the CME currently has individual option contracts.

Accepted Answer

A) True 
 B)False  False

Question 2

In a declining market, stock index futures can be used to hedge a stock portfolio to help offset losses in the portfolio.

Accepted Answer

A) True 
 B)False  True

Question 3

A combination of a futures and options contract is an option to purchase the futures contract.

Accepted Answer

A) True 
 B)False  True

Question 4

When basis increases with the passage of time, this is thought to be:

Accepted Answer

A) a neutral indictor. 
B) a negative sign. 
C) a positive sign. 
D) an indication of market manipulation. 
A) a neutral indictor. 
B) a negative sign. 
C) a positive sign. 
D) an indication of market manipulation.

Question 5

Stock index futures contracts are limited to the Dow Jones Industrial Average.

Accepted Answer

A) True 
 B)False

Question 6

Stock specialists and OTC dealers hedge their positions with stock index futures:

Accepted Answer

A) to profit from major market movements. 
B) to reduce market risk on his or her inventory. 
C) to reduce the unsystematic risk on the stocks in his or her inventory. 
D) More than one of the above 
A) to profit from major market movements. 
B) to reduce market risk on his or her inventory. 
C) to reduce the unsystematic risk on the stocks in his or her inventory. 
D) More than one of the above

Question 7

Futures provide a more efficient hedge than options, in that gains and losses can be more fully offset by futures contracts.

Accepted Answer

A) True 
 B)False

Question 8

A perfect hedge using stock index futures eliminates both losses and gains on a stock portfolio.

Accepted Answer

A) True 
 B)False

Question 9

Investing in stock index futures is one way to reduce or eliminate unsystematic risk.

Accepted Answer

A) True 
 B)False

Question 10

When the portfolio manager wants to hedge a stock portfolio using an index futures contract, he or she must know: 1) the total dollar value of the portfolio, 2) the current index futures price, and 3) the relative volatility of the portfolio to the market.

Accepted Answer

A) True 
 B)False

Question 11

Stock index futures provide the portfolio manager a realistic alternative to selling either a part or the entirety of a portfolio in a declining market.

Accepted Answer

A) True 
 B)False

Question 12

A primary difference between stock options and stock index options is:

Accepted Answer

A) stock index options tend to be more highly speculative. 
B) stock index options are ALWAYS settled ONLY for cash. 
C) there is rarely a premium on stock index options. 
D) None of the above 
A) stock index options tend to be more highly speculative. 
B) stock index options are ALWAYS settled ONLY for cash. 
C) there is rarely a premium on stock index options. 
D) None of the above

Question 13

One disadvantage to stock index futures is that there is no opportunity for arbitraging, as there is for stock index options.

Accepted Answer

A) True 
 B)False

Question 14

Stock index options tend to be more highly speculative than stock index futures.

Accepted Answer

A) True 
 B)False

Question 15

You buy an S&P 500 Index Call Option for $15. The strike price is $1,250. If the index closes at $1,290, what is your total profit?

Accepted Answer

$2,500
Explanation: Refer to t

Question 16

Options on stock index futures may settle on a cash basis or exercise the option to obtain the futures contract.

Accepted Answer

A) True 
 B)False

Question 17

Futures contracts exist for the:

Accepted Answer

A) Dow Jones Industrial Average. 
B) NASDAQ 100 Stock Index. 
C) S&P 500. 
D) All of the above 
A) Dow Jones Industrial Average. 
B) NASDAQ 100 Stock Index. 
C) S&P 500. 
D) All of the above

Question 18

The settle price shown in a stock index futures table is the:

Accepted Answer

A) highest price the contract hit during the day. 
B) closing price for the contract at the end of the day. 
C) price for the contract only for the last day of the contract. 
D) None of the above are true 
A) highest price the contract hit during the day. 
B) closing price for the contract at the end of the day. 
C) price for the contract only for the last day of the contract. 
D) None of the above are true

Question 19

The value of a stock index futures contract is the product of ____ and the appropriate multiplier.

Accepted Answer

A) the settle price 
B) the change in the settle price 
C) the difference between the settle price and the change 
D) None of the above 
A) the settle price 
B) the change in the settle price 
C) the difference between the settle price and the change 
D) None of the above

Question 20

Value Line futures contracts trade on the Kansas City Board of Trade.

Accepted Answer

A) True 
 B)False

Exam 16: Stock Index Futures and Options

The S&P 100 Index is composed of 100 blue chip stocks on which the CME currently has individual option contracts.

In a declining market, stock index futures can be used to hedge a stock portfolio to help offset losses in the portfolio.

A combination of a futures and options contract is an option to purchase the futures contract.

When basis increases with the passage of time, this is thought to be:

Stock index futures contracts are limited to the Dow Jones Industrial Average.

Stock specialists and OTC dealers hedge their positions with stock index futures:

Futures provide a more efficient hedge than options, in that gains and losses can be more fully offset by futures contracts.

A perfect hedge using stock index futures eliminates both losses and gains on a stock portfolio.

Investing in stock index futures is one way to reduce or eliminate unsystematic risk.

When the portfolio manager wants to hedge a stock portfolio using an index futures contract, he or she must know: 1) the total dollar value of the portfolio, 2) the current index futures price, and 3) the relative volatility of the portfolio to the market.

Stock index futures provide the portfolio manager a realistic alternative to selling either a part or the entirety of a portfolio in a declining market.

A primary difference between stock options and stock index options is:

One disadvantage to stock index futures is that there is no opportunity for arbitraging, as there is for stock index options.

Stock index options tend to be more highly speculative than stock index futures.

You buy an S&P 500 Index Call Option for $15. The strike price is $1,250. If the index closes at $1,290, what is your total profit?

Options on stock index futures may settle on a cash basis or exercise the option to obtain the futures contract.

Futures contracts exist for the:

The settle price shown in a stock index futures table is the:

The value of a stock index futures contract is the product of ____ and the appropriate multiplier.

Value Line futures contracts trade on the Kansas City Board of Trade.

The Investment Setting

Security Markets

Participating in the Market

Investment Companies: Mutual Funds, Exchange-Traded Funds, Closed-End Funds, and Unit Investment Trusts

Economic Activity

Industry Analysis

Valuation of the Individual Firm

Financial Statement Analysis

Efficient Markets and Anomalies

Behavioral Finance and Technical Analysis

Bond and Fixed-Income Fundamentals

Principles of Bond Valuation and Investment

Convertible Securities and Warrants

Put and Call Options

Commodities and Financial Futures

A Basic Look at Portfolio Management and Capital Market Theory

Duration and Bond Portfolio Management

International Securities Markets

Investments in Real Assets

Alternative Investments: Private Equity and Hedge Funds

Measuring Risks and Returns of Portfolio Managers

A Comprehensive Analysis for Real Estate Investment Decisions

The Makeup of Institutional Investors

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