Unit 4

An investor purchased a Mosaks, Inc., put option with a strike price of $105. If Mosaks' stock price is $115 at expiration, the value of the put option is

$0

One way in which futures contracts differ from options contracts is that

both parties are obligated in futures, only the seller in options

Which of the following strategies would be considered most risky in a bull market?

writing naked calls

Which of the following would not be considered derivatives? A) Equity options B) Forward contracts C) Futures contracts D) An ETF tracking the Bloomberg Commodity Index

D

Options positions can create either rights or obligations. In which option position has the investor created the possible obligation to purchase stock?

selling a put

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

A

One of your clients purchases a European-style put option on a stock. The premium is $3 and the exercise price is $35. If the price of the underlying asset is $40 on the exercise date, the client has

lost 300

Options are a popular tool for reducing investment risk. Which risk is hedged when a corporation buys call options on its own common stock?

market risk

Bail Bonds, Inc., might issue warrants in connection with a bond issue for which of the following reasons? As an inducement to make the bonds more marketable To lower their interest cost on the issue To increase the marketability of their common stock To increase the number of common shares outstanding

1 and 2

An investor purchases two PMJ Dec 16 calls at $0.85. If the commission charge is $8, the total cost is

178

Which of the following investments would not be considered exchange-traded derivatives? A) Warrants B) Futures C) Forwards D) Options

C

Which of the following statements regarding derivative securities is not true? A) Derivative securities can be sold on listed exchanges or in the over-the-counter market. B) An option contract's price fluctuates in relationship to the time remaining to expiration as well as with the price movement of the underlying security. C) An owner of a put has the obligation to purchase securities at a designated price (the strike price) before a specified date (the expiration date). D) An option contract is a derivative security because it has no value independent of the value of an underlying security.

C

The term derivative would not include

REITs