Question 1

Options may have advantages over futures for some investors because:

Accepted Answer

A) options have a lower margin requirement. 
B) options provide more efficient hedging. 
C) some investors are prohibited by law from participating in the futures market. 
D) None of the above 
A) options have a lower margin requirement. 
B) options provide more efficient hedging. 
C) some investors are prohibited by law from participating in the futures market. 
D) None of the above

Question 2

Each of the major stock index futures markets has a corresponding stock index options market.

Accepted Answer

A) True 
 B)False

Question 3

The margin requirement will be lower than the standard requirement on a stock index futures contract when:

Accepted Answer

A) the stock market is declining. 
B) the futures are used to hedge a portfolio. 
C) the investor is establishing a speculative position. 
D) None of the above 
A) the stock market is declining. 
B) the futures are used to hedge a portfolio. 
C) the investor is establishing a speculative position. 
D) None of the above

Question 4

Options generally allow for a more efficient hedge than futures.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following statements about hedging a stock portfolio with stock index futures is NOT true?

Accepted Answer

A) Futures contracts magnify gains (or losses) on the stock portfolio 
B) In a declining market, futures contracts help offset losses on the portfolio 
C) A risk-taker would probably not hedge the entire portfolio with stock index futures 
D) All of the above are true 
A) Futures contracts magnify gains (or losses) on the stock portfolio 
B) In a declining market, futures contracts help offset losses on the portfolio 
C) A risk-taker would probably not hedge the entire portfolio with stock index futures 
D) All of the above are true

Question 6

An investor bought a March S&P 500 Index futures contract in December for $1,490.05. After six months the contract value went up to $1,539.95. The contract has a multiplier of 250. With an initial margin of $20,000, what is the percent return on margin?

Accepted Answer

A) 62.38% 
B) 60.32% 
C) 7.70% 
D) 7.45% 
E) 6.32% 
A) 62.38% 
B) 60.32% 
C) 7.70% 
D) 7.45% 
E) 6.32%

Question 7

Stock index options have very low speculative premiums since the unsystematic risk is almost zero.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following is NOT an advantage of investing in stock index futures for the speculator?

Accepted Answer

A) The elimination of unsystematic risk 
B) Manipulation by insiders is less likely than with individual securities 
C) Maximum leverage potential 
D) All of the above are advantages 
A) The elimination of unsystematic risk 
B) Manipulation by insiders is less likely than with individual securities 
C) Maximum leverage potential 
D) All of the above are advantages

Question 9

The value of an option to purchase a stock index futures contract depends on the outlook of the futures contract.

Accepted Answer

A) True 
 B)False

Question 10

An arbitrage is trading in:

Accepted Answer

A) options and futures at the same time. 
B) two different markets when the price of the same item is different. 
C) two different markets when the price of two different items is the same. 
D) two different markets when there is no correlation between the markets. 
A) options and futures at the same time. 
B) two different markets when the price of the same item is different. 
C) two different markets when the price of two different items is the same. 
D) two different markets when there is no correlation between the markets.

Question 11

When an investment banker hedges a stock for initial distribution with stock index futures,

Accepted Answer

A) the underwriter intends to reduce the risk of loss during the distribution period. 
B) there is potential of gain or loss on both the stock and the stock index futures. 
C) he or she sells futures contracts. 
D) All of the above 
A) the underwriter intends to reduce the risk of loss during the distribution period. 
B) there is potential of gain or loss on both the stock and the stock index futures. 
C) he or she sells futures contracts. 
D) All of the above

Question 12

An investor bought a March S&P 500 Index futures contract in December for $1,490.05. After six months the contract value went down to $1,466.00. The contract has a multiplier of 250. With an initial margin of $20,000, and a $16,000 maintenance margin requirement, would there be a call for more margin?

Accepted Answer

A) No, the account would have an excess of $2,012.50 
B) Yes, an additional $3,677.19 would be required 
C) No, the account would have exactly enough cash for margin 
D) Yes, an additional $2,012.50 would be required 
E) No, the account would have an excess of $3,677.19 
A) No, the account would have an excess of $2,012.50 
B) Yes, an additional $3,677.19 would be required 
C) No, the account would have exactly enough cash for margin 
D) Yes, an additional $2,012.50 would be required 
E) No, the account would have an excess of $3,677.19

Question 13

An investor earns a profit on a put option when:

Accepted Answer

A) the increase in the index is greater than the premium paid. 
B) the index decreases. 
C) the decrease in the index is greater than the premium paid. 
D) None of the above 
A) the increase in the index is greater than the premium paid. 
B) the index decreases. 
C) the decrease in the index is greater than the premium paid. 
D) None of the above

Question 14

The Mini S&P 500 contract is made up of different stocks than the traditional S&P 500 contract.

Accepted Answer

A) True 
 B)False

Question 15

Stock index futures and options allow an investor to:

Accepted Answer

A) select a security from any of those included in the index. 
B) gain or lose from the movement of the index. 
C) trade any of the securities in the index. 
D) None of the above 
A) select a security from any of those included in the index. 
B) gain or lose from the movement of the index. 
C) trade any of the securities in the index. 
D) None of the above

Question 16

The market for stock index futures began in February of 1982, when the NYSE began trading futures on the Dow Jones Industrial Average.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following statements about the "basis" of stock index futures is true?

Accepted Answer

A) It is the difference between the futures price and the value of the actual underlying index 
B) Negative basis is generally considered to foretell a declining market 
C) The basis reflects market changes instantaneously, while the actual underlying index moves more slowly 
D) All of the above are true 
A) It is the difference between the futures price and the value of the actual underlying index 
B) Negative basis is generally considered to foretell a declining market 
C) The basis reflects market changes instantaneously, while the actual underlying index moves more slowly 
D) All of the above are true

Question 18

With stock options and stock index options, an investor's maximum loss is her premium on the contract.

Accepted Answer

A) True 
 B)False

Question 19

An investor bought a March S&P 500 Index futures contract in December for $1,490.05. After six months the contract value went up to $1,539.95. The contract has a multiplier of 250. What is the dollar profit?

Accepted Answer

A) $1,996 
B) $19,960 
C) $12,475 
D) $1,247.50 
E) $199.60 
A) $1,996 
B) $19,960 
C) $12,475 
D) $1,247.50 
E) $199.60

Question 20

Since there is never physical delivery of goods in the stock index futures market, all open transactions are automatically closed out on the settlement date.

Accepted Answer

A) True 
 B)False

Exam 16: Stock Index Futures and Options

Options may have advantages over futures for some investors because:

Each of the major stock index futures markets has a corresponding stock index options market.

The margin requirement will be lower than the standard requirement on a stock index futures contract when:

Options generally allow for a more efficient hedge than futures.

Which of the following statements about hedging a stock portfolio with stock index futures is NOT true?

An investor bought a March S&P 500 Index futures contract in December for $1,490.05. After six months the contract value went up to $1,539.95. The contract has a multiplier of 250. With an initial margin of $20,000, what is the percent return on margin?

Stock index options have very low speculative premiums since the unsystematic risk is almost zero.

Which of the following is NOT an advantage of investing in stock index futures for the speculator?

The value of an option to purchase a stock index futures contract depends on the outlook of the futures contract.

An arbitrage is trading in:

When an investment banker hedges a stock for initial distribution with stock index futures,

An investor earns a profit on a put option when:

The Mini S&P 500 contract is made up of different stocks than the traditional S&P 500 contract.

Stock index futures and options allow an investor to:

The market for stock index futures began in February of 1982, when the NYSE began trading futures on the Dow Jones Industrial Average.

Which of the following statements about the "basis" of stock index futures is true?

With stock options and stock index options, an investor's maximum loss is her premium on the contract.

An investor bought a March S&P 500 Index futures contract in December for $1,490.05. After six months the contract value went up to $1,539.95. The contract has a multiplier of 250. What is the dollar profit?

Since there is never physical delivery of goods in the stock index futures market, all open transactions are automatically closed out on the settlement date.

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

Filters