FNAN 405 Chapter 3 DAS

You purchased three call option contracts with a strike price of $22.50 and an option premium of $0.45. You held the option until the expiration date. On the expiration date, the stock was selling for $21.70 a share. What is the total profit or loss on your option position? A.) -$45 B.) $0 C.) -$240 D.) -$120 E.) -$135

E.) -$135 Total Loss= 300 x -$0.45= -$135

When a put option is exercised, the: A.) Seller of the option receives the strike price. B.) Seller of the option receives the option premium C.) Buyer of the option sells the underlying asset and receives the option premium D.) Buyer of the option pays the option premium and receives the underlying asset E.) Seller of the option must buy the underlying asset and pay the strike price.

E.) Seller of the option must buy the underlying asset and pay the strike price.

You purchased seven put option contracts with a strike price of $25 and a premium of $0;85. At a expiration, the stock was selling for $24.80 a share. What is the total profit/loss, assuming that you disposed of your shares on the expiration date? A.) -$955 B.) -$455 C.) $45 D.) $815 E.) $160

B.) -$455 Value of put option= minimum of (exercise price- market price; 0) Value of put option= 25-24.80= 0.20 Profit= Value of option premium= 0.20 - .85= -.65 Profit/loss for 7 contracts= .65 x 700 = -455

Which one of the following is a derivative asset? A.) Common Stock B.) Option Contract C.) Government Bond D.) Preferred Stock E.) Corporate Bond

B.) Option Contract

A security originally sold by a business or government to raise money is called a(n): A.) Derivative B.) Primary Asset C.) Primary Debt D.) Futures Contract E.) Option Contract

B.) Primary Asset

You purchased 500 shares of SLG, Inc. stock at a price of $40.20 a share. You then purchased put options on your shares with a strike price of $47.50 and an option premium of $1.90. At expiration, the stock was selling for $48.30 a share. You sold your shares on the option expiration date. What is your net profit or loss your transactions related to SLG, Inc Stock? A.) $2,650 B.) $2,250 C.) $3,100 D.) $3,550 E.) $3,700

C.) $3,100 Stocks 500 shares @ $40.20 Selling Price= $48.30 Profit= (48.30-20.20) x 500 = 4050 Put Option Exercise Price= 47.50 Do not exercise; value =0 Profit/Loss= -1.90 x 500= -950 Total Profit= 3100

Great Lakes Farm agreed this morning to sell General Mills 25,000 bushels of wheat six months from now at a price per bushel of $9.75. This is an example of a : A.) Call option B.) Put Option C.) Futures Contract D.) Money Market Security E.) Fixed Income Security

C.) Futures contract

A call option is an agreement that: A.) Obligates both the buyer and seller to a future transaction B.) Grants the seller the right to buy a security at a predetermined price. C.) Gives the buyer the right to purchase an asset at some point in the future D.) Grants the seller the right, but not the obligation, to sell an asset. E.) Presents a price but not a time period.

C.) Gives the buyer the right to purchase an asset at some point in the future.

A financial asset that represents a claim on another financial asset is classified as a _______ asset. A.) Secondary B.) Optioned C.) Contracted D.) Derivative E.) Primary

D.) Derivative

A contract that grants the buyer the right, but not the obligation, to sell an asset at a specified price is called a: A.) Futures contract B.) Call option C.) Present Contract D.) Put Option E.) Primary Contract

D.)Put Option

You purchased four call option contracts with a strike price of $40 and an option premium of $1.25. You closed your contract on the expiration date when the stock was selling for $42.50 a share. What is your total profit or loss on your option position? A.) -$50 B.) -$10 C.) $135 D.) $385 E.) $500

E.) $500 Total profit= 400 x [(42.50-40)-125]=$500

You purchased three call option contracts with a strike price of $22.50 and an option premium of $0.45. You held the option until the expiration date. On the expiration date, the stock was selling for $21.70 a share. What is the total profit or loss on your option position? A.) -$45 B.) $0 C.) -$240 D.) -$120 E.) $-135

E.) -$135 Value of Call Option= minimum(market price-exercise price;0) Profit- Value of option-option premium Profit/loss= (0-.45)(300)=-135

Which one of the following represents a residual ownership interest in the issuer? A.) U.S. Treasury Bond B.) Corporate Bond C.) Municipal Bond D.) Preferred Stock E.) Common Stock

E.) Common Stock

Which one of the following is the best definition of a money market instrument? A.) Corporate debt that matures in 90 days or less B.) bank savings account C.) Investment issued by a financial institution that matures in 30 days or less. D.) Investment issued by a financial institution that matures in one year or less E.) Debt issued by the government or a corporation that matures in one year or less

E.) Debt issued by the government or a corporation that matures in one year or less

An agreement that grants the owner the right, but no obligation, to buy or sell a specific asset at a specific price during a specified period is called a(n)______ contract. A.) futures B.) obligatory C.) quoted D.) fixed E.) option

E.) option

A futures contract is an agreement: A.) that obligates a corporation to issue additional securities at a specific date in the future. B.) to exchange financial assets on a specific date in the future with the price determined on that date. C.) to deliver goods today in exchange for an agreed upon payment to be paid on a specified date in the future. D.) to exchange a specified quantity of goods on a specified date in the future at the current market price. E.) to exchange goods on a specified date in the future at a price that is agreed upon today.

E.) to exchange goods on a specified date in the future at a price that is agreed upon today.

Uptown Jewelers purchased a futures contract on 200 ounces of gold to be exchanged 3-months from now. As the contract holder, Uptown Jewelers: A.) has the right, but not the obligation, to purchase 200 ounces of gold 3 months from now. B.) Has the obligation to purchase 200 ounces of gold at the market price three months from now. C.) has an obligation to buy 200 ounces of gold but only if the price of gold increases within the next 3 months D.) is expecting the price of gold to decrease and thus is locking in a selling price E.) Will profit if the price of gold is higher three months from now.

E.) will profit if the price of gold is higher three months from now.