Homework Answers
Ans 4) A limit order is executed at specific price thus correct answer is option B.
ans 5) since one long and one short position is closed net change will be zero. Correct answer is A.
Ans 6) At 1.2 beta there will be 192 contract need to be short but once beta increases to 1.8 then 288 contract need to be shorted. in that case short 96 more contracts. Correct answer is option D.
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Emergency, please help. 4. A limit order A. Is an order to trade up to a...
(4) The notional amount of a derivative instrument is a. related to the number of units...
(4) The notional amount of a derivative instrument is a. related to the number of units specified in the derivative and the price that relates to the asset or liability underlying the derivative. b. the change in the price or rate that relates to the asset or liability underlying the derivative. c. the price or rate that relates to the asset or liability underlying the derivative. d. the number of units that is specified in the derivative instrument. (5) Forward...
2. A trader takes a long position and a hedge fund takes a short position on...
2. A trader takes a long position and a hedge fund takes a short position on ten S&P 500 futures contracts at 3300. A single S&P 500 futures contract invoice price equals ($50) x (Index Price). The initial margin is $12,500 and the maintenance margin is $9,500 per contract. Ten trading days later, the futures price of the index drops to 3150. a) What is the change in margin account balance 1) for the trader, and 2) for the hedge...
9. A portfolio manager has an equity portfolio that is valued at $75 million. The portfolio has a...
9. A portfolio manager has an equity portfolio that is valued at $75 million. The portfolio has a current beta of .9 and a dividend yield of 1%. It is currently August 15 and the manager is concerned that markets are volatile and the portfolio could lose value, so they decide to hedge. a. The manager will use the S&P 500 index contracts to hedge. The contract is settled in cash at $250 times the contract price. The current S&P...
(1pt) One futures contract is traded where both the long and short parties are closing out...
(1pt) One futures contract is traded where both the long and short parties are closing out existing positions. What is the resultant change in the open interest? No change Decrease by one Decrease by two Increase by one (1pt) When the strike price increases with all else remaining the same, which of the following is true? Both calls and puts increase in value Both calls and puts decrease in value Calls increase in value while puts decrease in value Puts...
10. What should a trader do when the one-year forward price of an asset is too low? Assume that the asset provides...
10. What should a trader do when the one-year forward price of an asset is too low? Assume that the asset provides no income. A. The trader should borrow the price of the asset, buy one unit of the asset and enter into a short forward contract to sell the asset in one year. B. The trader should borrow the price of the asset, buy one unit of the asset and enter into a long forward contract to buy the...
On 1 January you sold one March maturity S&P/ASX 200 index futures contract at a futures...
On 1 January you sold one March maturity S&P/ASX 200 index futures contract at a futures price of 700. If the futures price is 800 on 1 February, what is your profit? The contract multiplier is $25. In other words, the contract calls for delivery of $25 times the value of index. 1 index point move translates into a $25 change in the value of the contract. a. $100 b. -$100 c. $700 d. $2,500 e. -$2,500 Which one of...
15.6. [Introductory Derivatives Sample Question 30] Determine which of the following is NOT a distinguishing characteristic...
15.6. [Introductory Derivatives Sample Question 30] Determine which of the following is NOT a distinguishing characteristic of futures contracts, relative to forward contracts. (A) Contracts are settled daily, and marked-to-market. (B) Contracts are more liquid, as one can offset an obligation by taking the opposite position. © Contracts are more customized to suit the buyer's needs. (D) Contracts are structured to minimize the effects of credit risk. (E) Contracts have price limits, beyond which trading may be temporarily halted. 15.7....
9. A portfolio manager has an equity portfolio that is valued at $75 million. The Portfolio...
9. A portfolio manager has an equity portfolio that is valued at $75 million. The Portfolio has a current beta of .9 and a dividend yield of 1%. It is currently August 15 and the manager is concerned that markets are volatile and the portfolio could lose value, so they decide to hedge. a. The manager will use the S&P 500 index contracts to hedge. The contract is settled n cash at $250 times the contract price. The current S&P...
1. Which of the following trades implies that ownership has been taken? a. Buying a futures...
1. Which of the following trades implies that ownership has been taken? a. Buying a futures contract. b. Selling a futures contract. c. Buying a stock. d. Shorting a stock. e. None of the above implies ownership. The following transactions are the only ones made during the first 4 days a futures contract trades. Answer question 2 based on this table. DAY TRANSACTION S O 1 A Long 30, B Short 30 2 A Long 55, C Short 55 3...
Assume that futures contracts have zero initial margins and no daily margin calls. That is, you...
Assume that futures contracts have zero initial margins and no daily margin calls. That is, you pay nothing or get nothing when you enter a position in the futures contracts. You pay the entire futures price when you accept delivery of the underlying asset. You get the entire futures price when you make delivery of the underlying asset. Lastly, you pay your entire loss or get your entire profit on your futures position when you close the position with an...
(4) The notional amount of a derivative instrument is a. related to the number of units specified in the derivative and the price that relates to the asset or liability underlying the derivative. b. the change in the price or rate that relates to the asset or liability underlying the derivative. c. the price or rate that relates to the asset or liability underlying the derivative. d. the number of units that is specified in the derivative instrument. (5) Forward...
2. A trader takes a long position and a hedge fund takes a short position on ten S&P 500 futures contracts at 3300. A single S&P 500 futures contract invoice price equals ($50) x (Index Price). The initial margin is $12,500 and the maintenance margin is $9,500 per contract. Ten trading days later, the futures price of the index drops to 3150. a) What is the change in margin account balance 1) for the trader, and 2) for the hedge...
10. What should a trader do when the one-year forward price of an asset is too low? Assume that the asset provides no income. A. The trader should borrow the price of the asset, buy one unit of the asset and enter into a short forward contract to sell the asset in one year. B. The trader should borrow the price of the asset, buy one unit of the asset and enter into a long forward contract to buy the...
15.6. [Introductory Derivatives Sample Question 30] Determine which of the following is NOT a distinguishing characteristic of futures contracts, relative to forward contracts. (A) Contracts are settled daily, and marked-to-market. (B) Contracts are more liquid, as one can offset an obligation by taking the opposite position. © Contracts are more customized to suit the buyer's needs. (D) Contracts are structured to minimize the effects of credit risk. (E) Contracts have price limits, beyond which trading may be temporarily halted. 15.7....
1. Which of the following trades implies that ownership has been taken? a. Buying a futures contract. b. Selling a futures contract. c. Buying a stock. d. Shorting a stock. e. None of the above implies ownership. The following transactions are the only ones made during the first 4 days a futures contract trades. Answer question 2 based on this table. DAY TRANSACTION S O 1 A Long 30, B Short 30 2 A Long 55, C Short 55 3...
Assume that futures contracts have zero initial margins and no daily margin calls. That is, you pay nothing or get nothing when you enter a position in the futures contracts. You pay the entire futures price when you accept delivery of the underlying asset. You get the entire futures price when you make delivery of the underlying asset. Lastly, you pay your entire loss or get your entire profit on your futures position when you close the position with an...
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