Question 1

The primary use of stock index futures by the portfolio manager is

Accepted Answer

A) To offset the loss on the portfolio in a declining market 
B) To profit from major market movements 
C) To increase the profit potential on the portfolio 
D) All of the above 
A) To offset the loss on the portfolio in a declining market 
B) To profit from major market movements 
C) To increase the profit potential on the portfolio 
D) All of the above D

Question 2

The overuse of portfolio insurance in the market may be dangerous because

Accepted Answer

A) A large amount of selling may take place simultaneously 
B) A small amount of arbitraging may take place simultaneously 
C) In a down market,the insurance companies may not be able to pay for the losses 
D) All of the above 
A) A large amount of selling may take place simultaneously 
B) A small amount of arbitraging may take place simultaneously 
C) In a down market,the insurance companies may not be able to pay for the losses 
D) All of the above A

Question 3

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

Accepted Answer

A) True 
 B)False  False

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

If an investor can prove that he is hedging a long position,the margin requirement will be less.

Accepted Answer

A) True 
 B)False

Question 6

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

Accepted Answer

A) True 
 B)False

Question 7

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 8

The Nikkei 225 contract has a multiplier at

Accepted Answer

A) 5 
B) 10 
C) 100 
D) 250 
E) 500 
A) 5 
B) 10 
C) 100 
D) 250 
E) 500

Question 9

The multiplier for the S & P 500 future contract is:

Accepted Answer

A) 5 
B) 10 
C) 100 
D) 250 
E) 500 
A) 5 
B) 10 
C) 100 
D) 250 
E) 500

Question 10

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

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 11

Options generally allow for a more efficient hedge than futures.

Accepted Answer

A) True 
 B)False

Question 12

An investor bought a March S&P 500 Index futures contract in December for 1490.05.After six months the contract value went down to 1466.00.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

You buy an S & P 500 Index Call Option for 15.The strike price is 1250.If the index closes at $1,290,what is you total profit?

Accepted Answer

Closing Price $1290 Strike Pri

Question 14

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 15

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 16

Program trading calls for

Accepted Answer

A) Computer-based trigger points for large trades 
B) The use of computer programs to measure performance 
C) The use of only call options 
D) All of the above 
A) Computer-based trigger points for large trades 
B) The use of computer programs to measure performance 
C) The use of only call options 
D) All of the above

Question 17

In order to effectively hedge a stock portfolio,the portfolio manager must know the total dollar value of the portfolio,the current index futures price and

Accepted Answer

A) The number of contracts available in the market 
B) The portfolio P/E ratio 
C) The relative volatility of the portfolio to the market 
D) More than one of the above 
A) The number of contracts available in the market 
B) The portfolio P/E ratio 
C) The relative volatility of the portfolio to the market 
D) More than one of the above

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

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 20

The profit on a stock index option is determined by the change in the underlying value of the futures contract.

Accepted Answer

A) True 
 B)False

Exam 17: Stock Index Futures and Options

The primary use of stock index futures by the portfolio manager is

The overuse of portfolio insurance in the market may be dangerous because

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

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

If an investor can prove that he is hedging a long position,the margin requirement will be less.

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

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

The Nikkei 225 contract has a multiplier at

The multiplier for the S & P 500 future contract is:

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

Options generally allow for a more efficient hedge than futures.

An investor bought a March S&P 500 Index futures contract in December for 1490.05.After six months the contract value went down to 1466.00.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?

You buy an S & P 500 Index Call Option for 15.The strike price is 1250.If the index closes at $1,290,what is you total profit?

Futures contracts exist for the

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

Program trading calls for

In order to effectively hedge a stock portfolio,the portfolio manager must know the total dollar value of the portfolio,the current index futures price and

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

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

The profit on a stock index option is determined by the change in the underlying value of the futures contract.

The Investment Setting

Security Markets: Present and Future

Participating in the Market

Sources of Investment Information

Economic and Industry Analysis

Industry Analysis

Valuation of the Individual Firm

Financial Statement Analysis

A Basic View of Technical Analysis and Market Efficiency

Investment in Special Situations and Anomalies

Bond and Fixed Income Fundamentals

Principles of Bond Valuation and Investment

Duration and Reinvestment Concepts

Convertible Securities and Warrants

Put and Call Options

Commodities and Financial Futures

Mutual Funds

International Securities Markets

Investment in Real Assets

A Basic Look at Portfolio Management and Capital Market Theory

Measuring Risks and Returns of Portfolio Managers

Sustainable Growth Model

a Black Scholes Option Pricing Model

A Comprehensive Analysis for Real Estate Investment Decisions

Unit Investment Trusts Uits

The Makeup of Institutional Investors

Filters