Question 1

One of the major uses of a stock index future is the ability:

Accepted Answer

A) To use it to hedge 
B) To make an unlimited amount of money 
C) To increase risk 
D) All of the above 
A) To use it to hedge 
B) To make an unlimited amount of money 
C) To increase risk 
D) All of the above

Question 2

An investor bought a March S&P 500 Index futures contract in December for 1490.05.After six months the contract value went up to 1539.95.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 3

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 4

Stock index futures represent an efficient approach to:

Accepted Answer

A) Only taking on unsystematic risk 
B) Only taking on systematic risk 
C) Taking on zero risk because the index is fully diversified 
D) Taking on lots of risk due to the fact that the indexes are usually composed of lots of stocks,not just a few 
A) Only taking on unsystematic risk 
B) Only taking on systematic risk 
C) Taking on zero risk because the index is fully diversified 
D) Taking on lots of risk due to the fact that the indexes are usually composed of lots of stocks,not just a few

Question 5

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 6

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 7

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 and 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 and stocks in his or her inventory 
D) More than one of the above

Question 8

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 9

Some investors are prohibited by law from participating in the futures market.

Accepted Answer

A) True 
 B)False

Question 10

An investor bought a March S&P 500 Index futures contract in December for 1490.05.After six months the contract value went up to 1539.95.The contract has a multiplier of 250.With an initial margin of $20,000,what is the annualized percent return on margin?

Accepted Answer

A) 25.28% 
B) 29.8% 
C) 30.8% 
D) 120.64% 
E) 124.76% 
A) 25.28% 
B) 29.8% 
C) 30.8% 
D) 120.64% 
E) 124.76%

Question 11

Stock index futures and options are sometimes referred to as derivative products because they:

Accepted Answer

A) Are often used as part of program trading 
B) Make the market less volatile 
C) Have intrinsic characteristics 
D) Derive their existence from actual market indexes 
A) Are often used as part of program trading 
B) Make the market less volatile 
C) Have intrinsic characteristics 
D) Derive their existence from actual market indexes

Question 12

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

Accepted Answer

A) True 
 B)False

Question 13

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 3)the relative volatility of the portfolio to the market.

Accepted Answer

A) True 
 B)False

Question 14

With a given size portfolio,the higher the portfolio beta

Accepted Answer

A) The more likely the portfolio is to go up rather than down 
B) The more likely the portfolio is to go down rather than up 
C) The fewer contracts necessary to hedge the portfolio 
D) The more contracts necessary to hedge the portfolio 
A) The more likely the portfolio is to go up rather than down 
B) The more likely the portfolio is to go down rather than up 
C) The fewer contracts necessary to hedge the portfolio 
D) The more contracts necessary to hedge the portfolio

Question 15

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

Accepted Answer

A) True 
 B)False

Question 16

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

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 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 are true

Question 17

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 18

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

Accepted Answer

A) True 
 B)False

Question 19

You buy a Standard & Poor's 500 Index futures contract at 1,200.40.The multiplier is 250.The margin is $21,000.The margin maintenance requirement is set at $17,250.
A.If the contract closes out at 1,230.70,what is your dollar return? What is your percent return on margin? 
B.If the contract value goes down from $1,240.00 to $1,180.00,will you be called upon to put up more funds?

Accepted Answer

(a)Ending Value 1230.70 Purchase Price 1

Question 20

A tax hedge is used to reduce or eliminate tax on the capital gains on a portfolio.

Accepted Answer

A) True 
 B)False

Exam 17: Stock Index Futures and Options

One of the major uses of a stock index future is the ability:

An investor bought a March S&P 500 Index futures contract in December for 1490.05.After six months the contract value went up to 1539.95.The contract has a multiplier of 250.With an initial margin of $20,000,what is the percent return on margin?

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

Stock index futures represent an efficient approach to:

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

Options may have advantages over futures for some investors because

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

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

Some investors are prohibited by law from participating in the futures market.

An investor bought a March S&P 500 Index futures contract in December for 1490.05.After six months the contract value went up to 1539.95.The contract has a multiplier of 250.With an initial margin of $20,000,what is the annualized percent return on margin?

Stock index futures and options are sometimes referred to as derivative products because they:

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

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 3)the relative volatility of the portfolio to the market.

With a given size portfolio,the higher the portfolio beta

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

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

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

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

A tax hedge is used to reduce or eliminate tax on the capital gains on a portfolio.

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