Unit 4 (Quiz 2)

Kurt expects a certain stock to significantly rise in value in the near future. He is expecting a bond to mature in two months and does not want to miss out on any appreciation on the stock while waiting for the funds to become available. Which of the following would be the best option strategy for Kurt?

Buy a call option.

One of your advisory clients indicates that he would like to sell forward contracts in soybeans. It would be wise to warn the client that he will be facing which of these risks?

Liquidity Creditworthiness of the buyer

preemptive rights

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 maintain their proportionate share of ownership in the corporation.

An investor goes short five soybean futures contracts on the Chicago Mercantile Exchange (CME). When the contract expires,

both the buyer and the seller are obligated to perform.

A manufacturer of soybean oil is concerned that the price of soybeans will increase over the next six months. The best strategy to employ would probably be

a long hedge.

One of the differences between call options, rights, and warrants is that

a corporation can't issue call options on its own stock.

Forwards, futures, and equity options are?

derivatives.

Straddle

multi-option strategy

An investor who is long XYZ stock would consider going long an XYZ call to

protect against an increase in the market price of XYZ stock.

An investor is long stock in a cash account and does not expect the price to change in the immediate future. His best strategy to generate income may be to

sell a call.