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finance homework mcq




Question;1. A single;option contract represents the right to buy or sell ______ share(s) of the;underlying stock.;a. 1;b. 10;c. 100;d. 1000;2. Options grant the holder the right to either buy or sell;shares within a certain time period at an established price, also known as the;price.;a. Premium;b. Strike;c. Target;d. Option;3. The vast majority of options contracts held by investors;are ultimately closed out;a. Through being exercised;b. By the investor selling them in the secondary market;c. Through termination by the options clearinghouse;d. By assignment to another investor;4. For the holder of a call option, the contract will have;value at the expiration date if the price of the underlying stock is _____ the;strike price. For a put, the economics are ______.;a. Above, reversed;b. Below, reversed;c. Above, the same;d. Below, the same;5. Assume you own a call option on IBM stock. The strike;price is $50, you paid a $2 premium for the option, and at expiration the price;of IBM stock is $47. Your gain/loss on this option contract will be;a. $(5);b. $(2);c. $0;d. $3;6. Assume you own 200 shares of Wal-Mart stock, with today?s;market price at $38. You decide to write two covered calls on this stock;position, at a strike price of $40, receiving a premium of $3 per share. At;expiration the price of Wal-Mart stock is $41. Your gain/(loss) per share from;today until expiration date on the stock and the option contract is;a. $2;b. $3;c. $4;d. $5;7. An investor who buys 100 shares of a stock, plus one put;option on the stock, owns a position where her per share downside risk;is______, while her per share upside potential is ________.;a. Minimal, large;b. Zero, moderate;c. Limited, infinite;d. Large, finite;8. You own a call option contract. The strike price is $25;and the underlying stock is currently trading at $27.50. The option has 60 days;until the expiration date. Without looking up the current trading price of the;option you know it is greater than $2.50 because option values are determined;by intrinsic value plus _______value.;a. Excess;b. Speculative;c. Trading;d. Time;9. A key point in the use of options is that their impact on;the returns and risks of a stock portfolio are NOT;a. Symmetrical;b. Magnified;c. Leveraged;d. Measurable;10. A primary difference between options on individual;stocks and stock-index options is that stock-index options are always;a. Settled with cash;b. Less volatile;c. Higher priced;d. Written on the S&P 500 index;11. The primary reason forward and futures markets exist is;to give investors more choices to;a. Speculate;b. Manage risk;c. Trade;d. Control commodities;12. Futures markets can be distinguished from forward;markets primarily by the standardized nature of contract size, delivery date;and conditions, leaving only _____ and ______ for traders to negotiate.;a. Terms, price;b. Settlement, cash value;c. Price, number of contracts;d. Clearing procedures, settlement;13. Assume you own five contracts for delivery of gold at a;specified price. Eventually you will close out the position. Settling your;obligation with;a. A counterparty;b. The securities and exchange commission;c. The national futures association;d. The clearinghouse;14. Although it is acceptable to close out a futures;position by delivery of the underlying item, the great majority of futures are;closed through;a. Swap;b. Redemption;c. Reversal;d. Offset;15. Every day all futures contracts are revalued. This;provides investors with a reckoning of profits or losses on positions and;determines margin requirements through a process called;a. Market to the market;b. Daily settlement;c. Re-valuation;d. Continuous pricing;16. Hedging is a critically important reason for futures;markets to exist, allowing the owner of an underlying item to establish a known;future sales price for that item. The basic procedure a futures hedger uses to;control risk is to establish a futures position;a. Similar to the ownership ratio;b. Opposite to the position in the cash market;c. That is long, when inventory is owned;d. That is short, when inventory is anticipated;17. Futures markets would not be nearly as efficient without;the presence of speculators, who provide the markets with;a. Risk inversion;b. Variability;c. Liquidity;d. Hedge bandwidth;18. One of the primary reasons for the growth in financial;futures is that portfolio managers seeks opportunities to protect themselves;against;a. Extended bear markets;b. Risk of default;c. Movements in interest rates;d. Political uncertainty;19. Assume you are a portfolio manager with treasury bonds;you intend to sell in two months. You are concerned that price movements will;erode the value of your bonds. A likely financial choice to reduce your risk is;a/an ______hedge.;a. Short;b. Long;c. Anticipatory;d. Net-price;20. As a stock portfolio manager, your frequently use stock;index futures to hedge your downside risk. You know that a stock index future;is only a partial hedge, meaning your portfolio will still be subject to;risk.;a. Time value;b. Interest rate;c. Systematic;d. Basis


Paper#49985 | Written in 18-Jul-2015

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