Investment Management Quiz 3 Review

Which security should sell at a greater price? 1.) An 8-year Treasury bond with a 10.25% coupon rate or an 8-year T-bond with a 9.25% coupon. A. An 8-year Treasury bond with a 10.25% coupon rate B. An 8-year T-bond with a 9.25% coupon 2.) A four-month expiration call option with an exercise price of $36 or a four-month call on the same stock with an exercise price of $41. A. A four-month expiration call option with an exercise price of $36 B. A four-month call on the same stock with an exercise price of $41 3.) A put option on a stock selling at $61 or a put option on another stock selling at $51. (All other relevant features of the stocks and options are assumed to be identical.) A. A put option on a stock selling at $61 B. A put option on another stock selling at $51

1.) A 2.) A 3.) B

An individual who goes short in a futures position _____. A. commits to delivering the underlying commodity at contract maturity B. commits to purchasing the underlying commodity at contract maturity C. has the right to deliver the underlying commodity at contract maturity D. has the right to purchase the underlying commodity at contract maturity

A. commits to delivering the underlying commodity at contract maturity

Money market securities are sometimes referred to as cash equivalents because _____. A. they are safe and marketable B. they are not liquid C. they are high-risk D. they are low-denomination

A. they are safe and marketable

The bid price of a Treasury bill is _________. A. the price at which the dealer in Treasury bills is willing to sell the bill B. the price at which the dealer in Treasury bills is willing to buy the bill C. greater than the ask price of the Treasury bill expressed in dollar terms D. the price at which the investor can buy the Treasury bill

B. the price at which the dealer in Treasury bills is willing to buy the bill

The price quotations of Treasury bonds in the Wall Street Journal show a bid price of 104.5313 and an ask price of 104.5489. If you sell a Treasury bond, you expect to receive _________. A. $ 1,000.00 B. $ 1,045.00 C. $ 1,045.31 D. $ 1,045.48

C. $ 1,045.31

A T-bill quote sheet has 60-day T-bill quotes with a 4.95 ask and a 4.89 bid. If the bill has a $10,000 face value, an investor could sell this bill for _____. A. $9,917.50 B. $9,919.62 C. $9,918.50 D. $10,000

C. $9,918.50

If a Treasury note has a bid price of $996.25, the quoted bid price in the Wall Street Journal would be _________. A. 99:5/8 B. 99:6/10 C. 99.6250 D. none of the options

C. 99.6250

Which of the following is not a money market instrument? A. Treasury bill B. commercial paper C. preferred stock D. bankers' acceptance

C. preferred stock

A __________ gives its holder the right to sell an asset for a specified exercise price on or before a specified expiration date. A. call option B. futures contract C. put option D. interest rate swap

C. put option

The purchase of a futures contract gives the buyer _________. A. the right to buy an item at a specified price B. the right to sell an item at a specified price C. the obligation to buy an item at a specified price D. the obligation to sell an item at a specified price

C. the obligation to buy an item at a specified price