Unit 4 Checkpoint Exam

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Exercise of which of the following would not result in a change on the issuer's balance sheet? A) Warrants B) Rights C) A call option D) Convertible preferred stock

C) A call option

Which of the following statements is true? A) A futures contract does not involve obligations to buy or sell an asset. B) Unlike forwards, futures are not traded on an exchange. C) A futures contract has standardized terms. D) A futures contract always requires delivery of an asset.

C) A futures contract has standardized terms.

In general, the value of a derivative is primarily determined by which of the following? The price volatility of the underlying asset The exchange on which it is traded The length of time until the contract expires Whether it is purchased from a broker or a dealer A) II and III B) I and II C) I and III D) III and IV

C) I and III

The term used to describe investment vehicles whose value is based on an underlying asset is A) parity. B) funded debt. C) derivative. D) separate account.

C) derivative.

Buying a put option on a security one currently owns allows an investor to A) increase his profit if the security declines in price. B) receive the premium for the purchase of the put. C) participate in additional gains if the security continues to increase in price. D) buy more stock if he exercises the put.

C) participate in additional gains if the security continues to increase in price.

The term sweetener would most often apply to A) derivatives. B) convertibles. C) warrants. D) rights.

C) warrants.

Which of the following is not traded on any exchange? A) ETFs B) Futures contracts C) Closed-end funds D) Forward contracts

D) Forward contracts

Options positions can create either rights or obligations. In which option position has the investor created the possible obligation to purchase stock? A) Purchasing a call B) Selling a call C) Purchasing a put D) Selling a put

D) Selling a put

One of the privileges frequently offered to holders of common stock is A) put options. B) call options. C) warrants. D) preemptive rights.

D) preemptive rights.

An investor who was sure that a stock's price was going to move substantially but wasn't sure in which direction would be able to benefit by A) writing a straddle on that stock. B) selling the stock short and purchasing a call on the stock. C) purchasing the stock and a put on the stock. D) purchasing a straddle on that stock.

D) purchasing a straddle on that stock.

Which of the following statements is most accurate when describing equity straddle options? The option buyer is looking for market volatility. The option buyer is looking for market stability. The option seller is looking for market volatility. The option seller is looking for market stability. A) I and III B) II and IV C) II and III D) I and IV

C) II and III

You have a client who has sold short 100 shares of RIF, a stock listed on the NYSE. If the client wishes to use options to protect against unlimited loss, you would suggest the client A) buy 1 RIF call. B) buy 1 RIF put. C) sell 1 RIF call. D) sell 1 RIF put.

A) buy 1 RIF call.

Many investors with a long position in common stock employ the technique of writing call options on the underlying stock for the purpose of A) generating income. B) increasing the dividend return. C) protecting the premium. D) participating in the growth of the company.

A) generating income.

A commodities speculator purchases a 1,000-bushel wheat futures contract at $0.50 per bushel. At expiration, the settlement price is $0.45 per bushel. This individual A) has a $50 loss. B) effectively hedged the long wheat position. C) has a $50 gain. D) must make delivery of the wheat.

A) has a $50 loss.


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