FIN402 chap 1

A call option gives the holder a. the right to buy something b. the right to sell something c. the obligation to buy something d. the obligation to sell something e. none of the above

a

A forward contract has which of the following characteristics? a. has a buyer and a seller b. trades on an organized exchange c. has a daily settlement d. gives the right but not the obligation to buy e. all of the above

a

All of the following are financially engineered products, except: A) Mortgage B) Mortgage backed security C) Interest only D) Principal only

a

Assume that an investor lends 100 shares of Jiffy, Inc. common stock to a short seller. The bid-ask prices are $32.00 - $32.50. When the position is closed, the bid-ask prices are $32.50 - $33.00. The commission rate is 0.5%. The market interest rate is 5.0% and the short rebate rate is 3.0%. Calculate the gain or loss to the lender. Assume the lender is not subject to a bid-ask loss or commissions. A) $164.00 gain B) $164.00 loss C) $100.00 gain D) $100.00 loss

a

Assume that you open a 100-share short position in Jiffy, Inc. common stock at the bid-ask prices of $32.00 - $32.50. When you close your position, the bid-ask prices are $32.50 - $33.00. You pay a commission rate of 0.5%. The market interest rate is 5.0% and the short rebate rate is 3.0%. What is your additional gain or loss due to leasing the asset? A) $64.00 loss B) $160.00 loss C) $96.00 gain D) $0

a

In which one of the following types of contract between a seller and a buyer does the seller agree to sell a specified asset to the buyer today and then buy it back at a specified time in the future at an agreed future price. a. repurchase agreement b. short selling c. swap d. call e. none of the above

a

The expected return minus the risk-free rate is called a. the risk premium b. the percentage return c. the asset's beta d. the return premium e. none of the above

a

What is the cost of (buy) 100 shares of Jiffy, Inc. stock given that the bid-ask prices are Bid for seller $31.25 Ask for buyer $32.00 and a $15.00 commission per transaction exists? A) $3215 = 100 x 32 + 15 B) $3140 C) $3125 D) $3200

a

A firm provides a service that benefits from decreasing employment. This firm has a risk exposure to macro event. All other variables being equal, which of the following derivative securities is the firm most likely use to hedge its exposure? A) Short position in an economic futures B) Long position in an economic futures C) Short position in an interest rate futures D) Long position in an interest rate futures

b

Cash markets are also known as a.speculative markets b. spot markets c. derivative markets d. dollar markets e. none of the above

b

During the growing season, a corn farmer sells short corn futures contracts in an amount equal to her crop. If upon harvesting and selling her crop she maintains the contracts, she is then considered a(n): A) Hedger B) Speculator C) Arbitrager D) None of the above

b

Options on futures are also known as a. spot options b. commodity options c. exchange options d. security options e. none of the above

b

The process of creating new financial products is sometimes referred to as a. financial frontiering b. financial engineering c. financial modeling d. financial innovation e. none of the above

b

Which of the following contracts obligates a buyer to buy or sell something at a later date? a. call b. futures c. cap d. put e. swaption

b

Who from the following list would be considered a speculator by entering into a futures or options contract on commodities? A) Farmer B) Corn delivery truck driver C) Food manufacturer D) None of the above

b

A mutual fund is engaged in the short term and temporary purchase of index futures, for purposes of minimizing its cash exposures. Which "use" most closely explains their actions? A) Risk management B) Speculation C) Reduced transaction costs D) Regulatory arbitrage

c

A transaction in which an investor holds a position in the spot market and sells a futures contract or writes a call is a. a gamble b. a speculative position c. a hedge d. a risk-free transaction e. none of the above

c

According to trading volume data tabulated by the Wall Street Journal for April 15, 2010, which index futures contact experienced the highest total open interest? A) DJ Industrial Average B) S&P 500 Index C) Mini S&P 500 D) Mini Nasdaq 100

c

Assume that you open a 100-share short position in Jiffy, Inc. common stock at the bid-ask price of $32.00 - $32.50. When you close your position, the bid-ask prices are $32.50 - $33.00. If you pay a commission rate of 0.5%, what is your profit or loss on the short investment? A) $32.50 gain B) $16.25 loss C) $132.50 loss(32x100 ) - (33x100) - (32x100x0,5%) - ( 33x100x0,5%) D) $100.00 gain

c

Investors who do not consider risk in their decisions are said to be a. speculating b. short selling c. risk neutral d. traders e. none of the above

c

The market value of the derivatives contracts worldwide totals a. less than a trillion dollars b. in the hundreds of trillion dollars c. over a trillion dollars but less than a hundred trillion d. over quadrillion dollars e. none of the above

c

The process of selling borrowed assets with the intention of buying them back at a later date and lower price is referred to as a. longing an asset b. asset flipping c. shorting d. anticipated price fall arbitrage e. none of the above

c

Which of the following is not a derivative instrument? A) Contract to sell corn B) Option agreement to buy land C) Installment sales agreement D) Mortgage backed security

c

Which of the following trade on organized exchanges? a. caps b. forwards c. options d. swaps e. none of the above

c

A market in which the price equals the true economic value a. is risk-free b. has high expected returns c. is organized d. is efficient e. all of the above

d

Assume that you purchase 100 shares of Jiffy, Inc. common stock at the bid-ask prices of $32.00 - $32.50. When you sell, the bid-ask prices are $32.50 - $33.00. If you pay a commission rate of 0.5%, what is your profit or loss? A) $0 B) $16.25 loss C) $32.50 gain D) $32.50 loss ( 100 x 32,5 - 100 x 32.5 ) - ( 0,5% x 2)

d

Select the family member who is offering the most diversification to the rest of the family. A) Dad works for General Motors B) Mom works for Goodyear C) Daughter works for Jiffy Lube D) Son works for Eli Lilly & Company

d

When the law of one price is violated in that the same good is selling for two different prices, an opportunity for what type of transaction is created? a. return-to-equilibrium transaction b. risk-assuming transaction c. speculative transaction d. arbitrage transaction e. none of the above

d

Which of the following markets is/are said to provide price discovery? a. futures b. forwards c. options d. a and b e. b and c

d

Which of the following statements is not true about the law of one price a. investors prefer more wealth to less b. investments that offer the same return in all states must pay the risk-free rate c. if two investment opportunities offer equivalent outcomes, they must have the same price d. investors are risk neutral e. none of the above

d

The positive relationship between risk and return is called a. expected return b. market efficiency c. the law of one price d. arbitrage e. none of the above

e

Which of the following are advantages of derivatives? a. lower transaction costs than securities and commodities b. reveal information about expected prices and volatility c. help control risk d. make spot prices stay closer to their true values e. all of the above

e

Which of the following instruments are contracts but are not securities a. stocks b. options c. swaps d. a and b e. b and c

e