Exam 13: An Introduction to Derivative Markets and Securities

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Exhibit 13-5 USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) Sarah Kling bought a 6-month Peppy Cola put option with an exercise price of $55 for a premium of $8.25 when Peppy was selling for $48.00 per share. -Refer to Exhibit 13-5. What is Sarah's annualized gain/loss?

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The buyer of a straddle expects stock prices to move strongly in either direction.

(True/False)
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A stock currently sells for $75 per share. A put option on the stock with an exercise price $70 currently sells for $0.50. The put option is

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Which of the following statements is false?

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Forward contracts are traded over-the-counter and are generally not standardized.

(True/False)
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Assume that you purchased shares of a stock at a price of $35 per share. At this time you purchased a put option with a $35 strike price of $3. The stock currently trades at $40. Calculate the dollar return on this option strategy.

(Multiple Choice)
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A call option is in the money if the current market price is above the strike price.

(True/False)
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Investment costs are generally higher in the derivative markets than in the corresponding cash markets.

(True/False)
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A currency call is like being ____ in the currency futures.

(Multiple Choice)
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