Unit 9
It would be improper to use the term derivative to describe A. a call option B. a closed-end investment company C. a futures contract D. a warrant
B. the term derivative describes an asset whose value is based on something other than itself. Investment companies have their own portfolios--they don't derive their value from some other asset. Options, futures and warrants all base their value on some underlying asset.
Your customer is Long 10 ABC Jul 50 calls at 4.50. How many shares of stock will change hands if the exercise his option? A. 10 B. 100 C. 1,000 D. 10,000
C. 1,000; 100 shares per contract at 10 contracts
Your customer is long 10 ABC Jul 50 calls at 4.50. He owns how many options A. 1 B. 4.50 C. 10 D. 100
C. 10 options
Your customer is long 10 ABC Jul 50 calls at 4.50. What is the name of the underlying instrument? A. Call options B. Common stock C. ABC calls D. ABC common stock
D. ABC common stock
Your customer is long 10 ABC Jul 50 calls at 4.50. The contract gives him the A. Right to buy stock B. Right to sell stock C. obligation to buy stock D. obligation to sell stock
A. Buy; a call is a right to buy stock
Options are best described as A. derivatives B. substitutes C. swaps D. futures
A. Options are a type of derivative because they derive their values form the values of other investment instruments.
A farmer entered into a forward contract to sell his produce at $2.25 per bushel. At the expiration date of the contract, the price was $2.00 per bushel. the farmer would receive A. $2.25 B. $2.125 per contract C. a price negotiated between the buyer and the seller D. $2.00
A. The reason the farmer entered into this contract was to hedge against a drop in price. Because the strike prices was higher Thant the market price at expiration, the farmer made a good deal, while the buyer of the contract lost.
One of your clients sells 100 shares of XYZ stock shop at $50 per share. Although the client is quite bearish on the stock, she realizes that it is possible that good news in the overall economy could cause a surge in XYZ's price. Which of the following would you recommend to best protect her position? A. Buy an XYZ 50 put B. buy an XYZ 50 Call C. Sell an XYZ 50 put D. Sell an XYZ 50 call
B. A short-seller of stock will lose when they price of the stock rises, and there is no limit to how high that can be. The best protection is to purchase the 50 call because that gives her the ability to guy the stock as the same price she sold it for thereby limiting get amount she can lose.
Which term best describes the following situation: A customer has the right to sell 100 shares of MNO at 60 any time between July and October. A. long call B. Long put C. short call D. short put
B. The put buyer (long position) has the right to sell stock to a put writer who is obligated to buy stock.
Commonly traded on a regulated exchange would be any of the following EXCEPT A. ETFs B. forward contracts C. futures D. warrants
B. a forward contract is a direct commitment between one buyer and one seller. This makes each contract different, and lack of standardization makes exchanges trading a virtual impossibility.
The term derivative could be used to apply to any of the following EXCEPT A. forward contracts B. futures C. options D. REITs
D. REITs are valued based upon their own assets rather than being derived from the value of something else as the other choices are.
If a call option with an exercise price of $50 is purchase for $300, the maximum amount the investor can lose is A. unlimited B. $4,700, C. $5,000 D $300
D. Think about it - if you bought something for $300 (the premium on an option is per 100 shares). What is the most you can ever lose with anything of any type that you pay $300 for? Your purchase price!
