SIE Unit 5 Quiz 2

Intraday price changes due to normal market forces would be found with

1. Exchange traded fund shares 2. Closed end fund shares

Identify two trading strategies that a hedge fund could employ in its portfolio but a mutual fund cannot.

1. Trading on a margin to purchase portfolio securities 2. Selling short stocks

An investor is short a January 30 call at 5. Breakeven is

35.

An investor bought a put option and, in time, the underlying security declined below the strike price of the put. The put would probably

Be exercised

Bullish or bearish: put buyers and put writers

Bearish

Put buyers are

Bearish

An investor is long 6 MAS February 60 calls at 2.25 each. If at the time of the February expiration, the calls expire unexercised, how much money will the investor lose?

Buyers of options (calls or puts) lose the premium paid if the options expire unexercised. The most this investor can lose is the number of contracts (six) multiplied by the amount of the premium received, $225. Therefore, this investor's maximum loss is $1,350.

An investor establishes the following position: Long 1 XYZ September 40 call at 2. Utilizing this position, the maximum potential gain for the investor is

Long calls are bullish positions. The investor wants to see the stock go up in price. The maximum gain on a long call is unlimited because, in theory, the underlying stock's price can go to infinity and is, therefore, also unlimited.

Is there an annual contribution limit for 529 plans?

No.

When XYZ is trading at 40, an XYZ 30 put purchased at 3 would be

Out of the money because the market price is above the strike price

What does the buyer of a contract do?

Pays the premium and loses the contract if it expires

The maximum gain on a short put is

Premium

How are hedge funds structured?

Private investment partnerships that typically limit the number of investors and require large minimum investments.

What does the seller of a contract do?

Receives the premium and keeps it if the contract expires

Listed option transactions settle

T+1

Does the buyer or seller have the right to exercise a contract?

The buyer

On a long call, when the premium is equal to the intrinsic value, which of the following is true?

The contract is at parity

Does the buyer or seller have the obligation?

The seller has the obligation if the buyer decides to exercise.

When the Options Clearing Corporation (OCC) receives a notice to exercise, it will assign that notice to

The short broker dealer

True or False: Income from an ABLE account is tax free to the beneficiary.

True

Mikayla is a big fan of Seabird Coffee and is an enthusiastic investor. She currently owns 1,000 shares of the company stock and 10 call contracts on the stock as well. What is her maximum gain for this position?

Unlimited gain on the stock and option position.

For ETFs, the phrase "tax efficiency" means:

Usually, for ETFs, there are no tax consequences for investors until the shares are sold.

What do hedge funds typically invest in?

Very aggressive strategies like options, short sales, and currency and commodity trading.

For real estate program partners, tax credits will

reduce tax liability dollar for dollar