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FIU FIN4486 EXAM 1

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Question;Suppose that on October 24 you Sell 7 March gold futures;contracts for $285 per ounce.;At 11:00 am on October 25 you buy 5 March contracts for;$276.5 ounce. At the close of;trading on October 25, gold futures settle for $270.5 ounce.;If the contract size is 100;ounces and the initial margin equals 2850, how much do you;gain or lose as of the close?;Selected Answer;Correct Answer;Question 2;4 out of 4 points;Correct;The interest rate in Great Britain is 8.5 percent per year;and the interest rate in the USA is;9.5 percent. If the spot exchange rate is 1.15 dollars per;pound, what is the price of a 22;month forward contract to buy the British pound?;Selected Answer;Question 3;0 out of 4 points;Incorrect;Mogul oil refinery is planning to buy 9000 barrels of oil in;9 months. Suppose Mogul;hedges the risk by buying futures on 6300.0 barrels of oil.;The current oil futures price is;$24.0 dollars per barrel. If in 9 months the spot price of;oil is $23.0 and the futures price is;$23.9 per barrel, what is Mogul's effective cost per barrel?;Question 4;4 out of 4 points;Correct;An investor enters into a short oil futures contract when;the futures price is $15.25 per;barrel. The contract size if 100 barrels of oil. How much;does the investor gain or lose if;the oil price at the end of the contract equals $17.0;Question 5;4 out of 4 points;Correct;Suppose that a September put option with a strike price of;$140 costs $5. 5. Under what;circumstances will the seller (or writer) of the option earn;a positive or zero profit? Let S;equal the price of the underlying.;Selected Answer;S > 134.5;Question 6;4 out of 4 points;Correct;Suppose you enter into a long position to buy March Gold for;$310 per ounce. The;contract size is 100 ounces, the initial margin is $3100 and;the maintenance margin is;$1240. At what price will you receive a margin call?;Question 7;4 out of 4 points;Correct;Suppose you enter into a 6.0 month forward contract on one;ounce of silver when the spot;price of silver is $7.3 per ounce and the risk-free interest;rate is 9.75 percent continuously;compounded. What is the forward price?;Selected Answer;Question 8;4 out of 4 points;Correct;An investor enters into a long oil futures contract when the;futures price is $16.75 per;barrel. The contract size if 100 barrels of oil. How much;does the investor gain or lose if;the oil price at the end of the contract equals $14. 75?;Question 9;0 out of 4 points;Incorrect;Which of the following statements is true in a market in;which no arbitrage;opportunities are available?;I. A long;forward for delivery in one year at $100 is worth more than a;long call option;struck at $100 that expires in one year.;II. A short;forward which makes delivery in one year at $100 is worth;more than a long;put option struck at $100 that expires in one year.;III. A short;forward which makes delivery in one year at $100 is worth;more than a short;call option struck at $100 that expires in one year;IV. A long;forward for delivery in one year at $100 is worth more than a;short put option;struck at $100 that expires in one year;Question 10;4 out of 4 points;Correct;Suppose that on October 24 you buy 7 March gold futures;contracts for $325 per ounce.;At 11:00 am on October 25 you buy 4 more contracts for;$330.5 ounce. At the close of;trading on October 25, gold futures settle for $338.0 ounce.;If the contract size is 100;ounces and the initial margin equals 3250, how much do you;gain or lose as of the close?;Question 11;4 out of 4 points;Correct;The S&P 500 index has a dividend yield of 7.0 percent.;Suppose you enter into a 11.0;month forward contract to buy S&P 500 index. The current;value of the index equals;$1166.0 and the risk-free interest rate is 8.5 percent;continuously compounded. What is;the forward price?;Selected Answer;Question 12;4 out of 4 points;Correct;Generous Dynamics maintains an inventory of 15000 ounces of;gold. The company is;interested in protecting the inventory against daily price;changes. The correlation of the;daily change in the spot and futures price is. 55, the;standard deviation of the daily spot;price change is 20 percent, and the standard deviation of;the daily change in the futures;price is 37 percent. Futures contract size is 1000 ounces.;How many contracts should GD;buy or sell to hedge its inventory?;Question 13;4 out of 4 points;Correct;Mogul oil company will sell 5000 barrels of oil in 4 months.;Suppose Mogul hedges the;risk by selling futures on 5000 barrels of oil. The current;oil futures price is $18.1 dollars;per barrel. If in 4 months the spot price of oil is $16.5;and the futures price is $18.8 per;barrel, what is Mogul's effective price of oil per barrel?;Question 14;4 out of 4 points;Correct;Pixar stock is expected to pay a single $2.2 dividend in 5.0;months. Suppose you enter;into a 9.0 month forward contract to buy one share of Pixar;stock when the share price is;$41.6 per and the risk-free interest rate is 6.5 percent;continuously compounded. What is;the forward price?;Question 15;4 out of 4 points;Correct;Modern Portfolio Managers (MPM) hold a 4.5 million dollar;portfolio of stocks with a;beta of 1.1 measured with respect to the S&P 500 index.;The current value of a futures;contract on the index is 1069. 1. The multiplier on the;futures equals $250. If MPM wishes;to hedge the systematic risk in its portfolio, how many;contracts must it buy or sell?;Selected Answer;Question 16;0 out of 4 points;Incorrect;Generous Dynamics is planning on buying 12000 ounces of gold;in six months. The;correlation of the six-month change in the spot and futures;price is. 4. The standard;deviation of six-month change in spot and futures price are;11 percent and 39 percent;respectively. Futures contract size is 1000 ounces. How many;contracts should GD buy or;sell to hedge the future purchase?;Selected Answer;Question 17;4 out of 4 points;Correct;Suppose that a September put option with a strike price of;$90 costs $14.0. Under what;circumstances will the holder of the option earn a profit?;Let S equal the price of the;underlying.;Question 18;4 out of 4 points;Correct;Under which of the following cases is a short hedge;appropriate?;I. you;anticipate buying the spot asset in the future;II.. you;anticipate selling the spot asset in the future;III. you;currently own the spot asset and want to be protected against spot price;changes;IV. you;anticipate buying a portfolio of stocks in the future;Choices;Question 19;0 out of 4 points;Incorrect;Which of the following is true for all derivative securities;we have considered in class?;I. they are;settled daily;II.. they are;zero sum games;III. their;future value is derived from an underlying asset or variable at future date;IV. a margin;deposit is required;V. they can;be used for hedging;Choices;Question 20;4 out of 4 points;Correct;Which of the following statements concerning a minimum;variance hedge (MVH) are true?;I. the MVH;is perfect if the hedge ratio equals one;II.. the MVH;allows the hedger to lock in the futures price;III. the;optimal hedge ratio is less than one if the volatility of spot price changes is;less;than the volatility of futures price changes over the;hedging period (?S

 

Paper#49993 | Written in 18-Jul-2015

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