Series 65 - Unit 4 Quiz #2

Which of the following statements about preemptive rights are true? Preemptive rights give shareholders the right to purchase shares of new stock issues in direct proportion to the number of shares they already own. Preemptive rights allow shareholders to buy as many new shares as they want at any time. Preemptive rights allow shareholders to maintain their proportionate share of ownership in the corporation. A) I, II, and III B) I and III C) II and III D) I and II

B.

A commodities speculator purchases a 1,000-bushel wheat futures contract for 75 cents per bushel. At expiration, the settlement price is 85 cents per bushel. This individual A) effectively hedged the long wheat position. B) has a $100 gain. C) must make delivery of the wheat. D) has a $100 loss.

B. Buyer bought in at 0.75, now seller has to deliver at 0.75, despite the value currently being 0.85

A member of the investment banking department of ABC Securities is explaining some of the advantages and disadvantages of rights and warrants to the board of directors of XYZ Corporation. Which of the following statements could he make? The exercise prices of stock rights are usually below the current market price of the underlying security at time of issue. The exercise prices of warrants are usually above the current market price of the underlying security at time of issue. Both rights and warrants may trade in the secondary market and may have prices that include a speculative (time) value. Warrants are often issued attached to a bond issue to reduce the interest costs to the issuer. A) I, II, III, and IV B) I, II, and III C) I only D) I and II

A.

For which of the following is there no active secondary market? A) ETFs B) Options C) Forward contracts D) Futures contracts

C.

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 III C) I and IV D) II and IV

C.

Which of the following strategies would be considered most risky in a bull market? A) Writing naked puts B) Buying a put C) Writing naked calls D) Buying calls

C.

Derivatives can serve many purposes. However, investors should be aware that there are positions which can result in A) unlimited loss. B) generation of income. C) potential gains. D) asset protection.

A.

The RIF Corporation would not be able to issue A) RIF call options. B) RIF warrants. C) RIF rights. D) RIF common stock.

A.

Which of the following is a multi-option strategy? A) Straddle B) Long call C) Protective put D) Short call

A.

A purchaser of which of the following investments has an obligation? A) Stock rights B) Forwards C) Options D) Warrants

B.

News reports indicate that the wheat crop scheduled to be harvested in three months will be much larger than normal. To hedge, a wheat farmer would most likely A) grow corn instead. B) take a short position in wheat futures. C) sell wheat stock short. D) take a long position in wheat futures.

B.

Which of the following are characteristics of newly issued warrants? A) Intrinsic value but no time value B) Time value but no intrinsic value C) No intrinsic value and no time value D) Time value and intrinsic value

B.

All of the following positions expose a customer to unlimited risk except A) short 2 XYZ uncovered calls. B) short 200 shares of XYZ and short 2 XYZ puts. C) short 2 XYZ uncovered puts. D) short 200 shares of XYZ.

C.

Standardized equity options are issued and guaranteed by A) the Commodities Futures Trading Commission (CFTC). B) the National Futures Association (NFA). C) the Chicago Board Options Exchange (CBOE). D) the Options Clearing Corporation (OCC).

D.

You have a client who is bullish on XYZ stock and currently owns 100 shares that last traded at $50. He has a CD coming due in March, six months from now, and is afraid that by the time those funds are available, XYZ will have shot up in price. How can he ensure that he'll be able to pick up the stock at today's price six months from now and not miss out on that market appreciation? A) Buy XYZ stock rights. B) Sell an XYZ March 50 put option. C) Buy an XYZ March 50 put option. D) Buy an XYZ March 50 call option.

D.