The premium paid on an option contract (either a put or a call) represents the compensation the buyer of the option receives from the seller (writer) of the option for the ability to use the option if it becomes profitable. If the buyer of the option does not use the option before expiration, this premium must be returned back to the seller (writer) at the time the option expires.
True
False
2 points
QUESTION 3
On the day of settlement, the futures price must equal the spot price. The process by which this occurs is termed convergence to spot.
True
False
2 points
QUESTION 4
Under a discretionary managed account, a professional money manager must consult with the client each time a change is made to the client's account as it depends on the discretion of the client as if the investment action is appropriate.
True
False
2 points
QUESTION 5
Style drift is the movement over time away from one benchmark index (e.g., S&P 500) with certain characteristics, to another index (e.g., Russell 1000) with different characteristics. Such a style drift will have an impact on the performance evaluation of a given investment manager.
True
False
2 points
QUESTION 6
To account for stock splits, the exercise price of an option contract on the impacted security is reduced by the factor of the split, and the number of options held by the option buyer under the contract is increased by that factor.
True
False
2 points
QUESTION 7
Closed-end investment companies (i.e., closed-end funds) were the only type of fund available in the U.S. until 1924 when the first open-end mutual fund was started in Boston.
True
False
2 points
QUESTION 8
Noise Trading would normally be classified as a type of fundamental analysis strategy.
True
False
2 points
QUESTION 9
In the case of a Naked (uncovered) option the writer of the option contract does NOT have to post margin in his/her account when they write the option.
True
False
2 points
QUESTION 10
Under a forward contract the buyer and seller deal with an exchange, not with each other.
True
False
2 points
QUESTION 11
Most Venture Capital firms can hold an invest position in a company for up to 10 years or more.
True
False
2 points
QUESTION 12
Under an Involuntary (Chapter 6) bankruptcy, one or more of a firm's creditors petition a court to have the company (debtor) judged insolvent.
True
False
2 points
QUESTION 13
Options may sell for more than their intrinsic value in the market, but should never sell for less than their intrinsic value.
True
False
2 points
QUESTION 14
Since the 1930's commercial banks have NOT been permitted to do any type of securities underwriting.
True
False
2 points
QUESTION 15
With regards to a futures contract, the SHORT position will make money when the underlying item's price RISES.
True
False
2 points
QUESTION 16
If interest rates rise, the value of Master Limited Partnership (MLP) units will rise.
True
False
2 points
QUESTION 17
Basis risk is the risk to an investor arising from the uncertainty about the basis at a given future date. It is the most important type of risk a speculator/hedger faces in dealing with commodity prices.
True
False
2 points
QUESTION 18
In a " Best Effort" underwriting, the investment bank purchases the securities from the issuing company (thereby guaranteeing a specific price to the issuer) and then seeks its "best effort" to sell the securities to institutional investors.
True
False
2 points
QUESTION 19
The objective of active portfolio management is to earn a portfolio return which matches the return of a predetermined passive benchmark portfolio (net transaction costs) on a risk-adjusted basis.
True
False
2 points
QUESTION 20
With regards to a futures contract, open interest refers to the number of futures contracts outstanding which have been established but have not been offset by a reverse trade or exercised (i.e., at maturity date). Long and short positions are not counted separately (i.e., open interest can be defined in terms of either the number of long or short contracts, as for every long contract there will be a corresponding short position).
True
False
2 points
QUESTION 21
Companies that use the Master Limited
Partnership (MLP) format tend to operate in
very stable, slow-grow industries such as the energy.
True
False
2 points
QUESTION 22
An American-style option will normally have a total premium at least as valuable as an otherwise comparable European or similar type option contracts. (That is, American options will generally have a total premium larger than a European option.)
True
False
2 points
QUESTION 23
The time premium of an option is a function of the probability that the option could change in value by the time of expiration.
True
False
2 points
QUESTION 24
Most futures contracts involve the actual delivery of the item in the contract.
True
False
2 points
1]
False
The premium paid represents the compensation the seller receives from the buyer
2]
False
If the option is not used, the premium is not returned
3]
True
The futures price converges to the spot price at expiration, and this process is called convergence to spot
4]
False
This is a non-discretionary account. Under a discretionary account, the money manager has discretion
The premium paid on an option contract (either a put or a call) represents the compensation...
: Since the 1930's commercial banks have NOT been permitted to do any type of securities underwriting. True False : With regards to a futures contract, the SHORT position will make money when the underlying item's price RISES. True False : If interest rates rise, the value of Master Limited Partnership (MLP) units will rise. True False : Basis risk is the risk to an investor arising from the uncertainty about the basis at a given future date. It is...
14. Junk bonds are bonds that are rated less than investment grade by bond-rating agencies a) True b) False 15. A secured loan has a claim to specific assets ofthe borrower in the case of default. a) True b) False 16. In a conventional interest rate swap agreement, the swap buyer agrees to make a number of fixed interest rate payments to the swap seller a) True b) False 17. Currency swaps can be designed to reduce foreign exchange risk....
QUESTION 12 A call option on a stock, with time to maturity of 2 months and strike price of $25.67, is currently trading at a premium of $1.78 per share. If you buy options on 20,000 shares (200 contracts), and then at maturity the stock is trading at $22.76, what is your net profit from this position? QUESTION 13 A futures contract on copper traded at the Chicago Mercantile Exchange has a denomination of 25,000 pounds. Today you enter into...
IBM sells a call option on euros (contract size is €600,000) at a premium of $0.02 per euro. If the exercise price is $1.44/€ and the spot price of the euro at date of expiration is $1.45/€, A. Will this option be exercised, that is, is in-the-money or out-of-the-money? Why? (2 points) B. What is IBM’s profit (or loss) on the call option? (3 points)
Assume that we have the following derivatives portfolio: A long futures contract on stock A, with strike price 82 and a long put option contract on the same stock, with the same strike price. The option's premium is 8 and is payed today. The risk free rate of interest is 5%, and the time of expiration is 1 year. What will be the present value profit for the above derivatives portfolio if the stock's spot price is 109 at the...
Assume that we have the following derivatives portfolio: A long futures contract on stock A, with strike price 90 and a long put option contract on the same stock, with the same strike price. The option's premium is 6 and is payed today. The risk free rate of interest is 5%, and the time of expiration is 1 year. What will be the present value profit for the above derivatives portfolio if the stock's spot price is 116 at the...
hint(think about the conditions under which early exercise of an American put option is optimal. What would happen to a European put option in this condition) De Ingler utan nat of a European call option None of the above are true, since the decision to exercise the option early lies with the writer of the option QUESTION 5 Which of the following is true about the premium of a European put option in relation to the option's intrinsic value? The...
Problem 1. True or false (briefly explain why) (1) It's free to enter a forward contract when it's initiated, so the forward price is 0. (2) At the terminal time T, as a forward contract holder, you can choose not to exercise the contract. (3) As a put option seller, you are obligated to buy the underlying at time T if the option buyer wants to exercise the option.
QUESTION 7 Now assume that instead of taking a position in the put option one year ago, you sold a futures contract on 100,000 euros with a settlement date of one year. What was the forward rate one year ago? 1.00000 points QUESTION 8 What is the total gain from this contract? 1.00000 points QUESTION 9 If the future exchange rate is higher than the spot rate, then we expect the spot rate to decrease. True False 1.00000...
1. On Sep 26th 2016 you sold a put option of $3(put premium) to give the buyer the right to sell a share of facebook on Oct 9th, 2016 at the strike price, X=$120. At the same time , you also sold short a facebook share, So is $128. If facebook shares go up to $140 on Oct 9th, what is your profit or loss ? 2. On sep 26th 2016, you sold a put option of $4 (premium) to...