Help
Options
Question
The most important factor affecting the market price of a put or call is the
click to flip
Didn't know it?
click below
click below
Knew it?
click below
click below
Don't know
Question
Andrea wrote a three-month call on Echo stock. the option cost $200 and the strike price was $10. What does the market price of Echo have to be for andrea to break-even on this investment if the option is exercised) ignore transaction construed taxes.
Remaining cards (54)
Know
retry
shuffle
restart
0:00
Embed Code - If you would like this activity on your web page, copy the script below and paste it into your web page.
Normal Size Small Size show me how
Normal Size Small Size show me how
FIN 344 final
| Question | Choices | Answer |
|---|---|---|
| The most important factor affecting the market price of a put or call is the | A)Market interest rate B)expiration date C)price behavior of the underlying common stock D)price behavior of the corresponding warrant | C)price behavior of the underlying common stock (14.3) |
| Andrea wrote a three-month call on Echo stock. the option cost $200 and the strike price was $10. What does the market price of Echo have to be for andrea to break-even on this investment if the option is exercised) ignore transaction construed taxes. | A)$10 B)$12 C)$8 D)cannot be determined from the information provided | B) $12 (14.3) |
| Which one of the following actions would be the most appropriate hedge to a short sale of common stock? | A)sale of a call B)purchase of a call C)sale of a put D)purchase of a put | C) $2640 (14.4) |
| The seller of a futures contract.......................A)has the option of canceling the contract the following day if the price is not acceptable to him/her | B)is legally bound to make delivery of a specified item on a specified day C)receives the entire contract amount at the time the contract is made D)muust make delivery before reieving any monies on the contract | B) is legally bound to make delivery of the specified item on a specified day (15.1) |
| Larry is a corn farmer. To attempt to maximize the value of his crop, Larry is most likely to benefit from----------A)selling his crop at the market price when it is harvested | B)buying a futures contract on corn for delivery at harvest time C)selling a futures contract on corn for delivery at harvest time D)buying a futures contract on corn and selling a futures contract on wheat | C) selling a futures contract on corn for delivery at harvest time (15.2) |
| the purchaser of futures contract...........A)is required to obtain a margin loan equal in amount to the most of the contract minus the cash down pament | B)is generally required to make a cah deposit of 10to20% of the contract price at the time of contract is entered C)does not have to worry about margin calls since margin loans are not required D) affected by a daily pricedure known as mark-to-the-marke | D) is affected by the daily procedure known as mark-to-the-market (15.2) |
| The maximum amount that the price of a futures contract can change during the day is referred to as | A)the swing limit B)the maximum daily range C)the daily margin limit D)the leverage restriction | B)the maximum daily range (15.4) |
| Which of the following statments is correct if a speculator short sells a commodity or financial futures contract? | A)the speculator expects to profit from a decline in the price of the contract B)the speculator stands to make an unlimited amount of profit since there is no limit to know how high the price of the underlying commodity or financial instrument can rise | A)the speculator expects to profit from a decline in the price of the contract (15.4) |
| One of the biggest differences between a futures option and a futures contract is that ----- A) the option | B)the futures contract limits the loss exposure to the price of the contract C)an option can be traded on the secondary market, whereas a futures contract cannot. D)a futures contract can be traded on the secondary market, whereas an option cannot | A) the option limits the loss exposure to the price of the option (15.6) |
| which of the following is a good reason to invest in convertible bonds? | A)they often have higher than normal coupon rates B)they offer protection against rising interest rates C)they tend to be issued by stable, low-risk companies D)they offer predictable income and a chance to profit from an increase in the stock price | D) they offer predictable income and a chance to profit from an increase in the stock price (10.6) |
| One drawback of investing in mutual funds is the | A)annual management fee B)lack of liquidity of fund shares C)amount required for the initial investment D)lack of information on the performance of the fund | A) annual management fee (12.1) |
| nearly all mutual funds operate as regulated investment companies. this means that | A)they are no-load funds B)portfolio decisions are mandated by government authorities C)they do not pay taxes on their income D)their investments are guaranteed by the FDIC | C)they do not pay taxes on their income (12.1) |
| An open-end investment company | A)is involved in all trades of its shares B)sells shares at a discounted NAV price C)trades like a stock on the exchanges D)has a set number of shares | A)is involved in all trades of its shares (12.2) |
| which one of the following statements concerning ETFs is correct | A)ETFs are based solely on US indexes B)the ETF based on a S&P500 is priced at 1/10 the value of that index C)spiders are based on the DJIA D)the ETF based on the Dow is priced at 1/10 of the value of the DJIA | B) the ETF based on a S&P500 is priced at 1/10 the value of that index (12.2) |
| closed-end funds are | A)less liquid than open-end funds B)best purchased when they are selling at a premium C)purchased directly from the funds' manager D)traded at NAV | A)less liquid than open-end funds (12.2) |
| Fund A NAV=17.13 Offer Price = 18.18 Fund B NAV=19.03 Offer Price= 19.03 which of the following is true | A)both funds are load funds B)fund A is a no-load fund C)Fund B is a no-load fund D)both funds are no-load funds | C)fund B is a no-load fund (12.2) |
| risk-seeking investors seeking maximum capital appreciation with little, if any current income, should invest in | A)value funds B)growth funds C)aggressive growth funds D)equity-income funds | C) aggressive growth funds (12.3) |
| The primary objective of an equity-income fund is | A)capital gains B)current income with capital preservation C)potentially high capital gains with limited income D)high risk-return trade-offs | B) current income with capital preservation (12.3) |
| which type of mutual fund consists of both stocks and bonds with a combined objective of current income and long-term capital gains | A)equity-income B)balanced C)value D)bond | B) balanced (12.3) |
| One advantage gained by investing in a bond fund rather than in individual bonds is the | A)ability to earn fully compounded rates of return B)government guarantee protecting the bond principal C)ability to earn a capital gain D)guarantee that the bonds will be held to maturity to avoid market fluctuations | A) ability to earn fully compounded rates of return (12.3) |
| a fund that is designed to match the performance of a measure such as the S&P500 or the Russell 2000 is called a | A)index fund B)targeted fund C)sector fund D)block fund | A) index fund (12.3) |
| socially responsible funds are distinguished from other mutual funds because they | A)invest only in over-the-counter stocks B)do not charge any sales commission or management fees C)invest only in companies that meet specified moral, ethical, or environmental standards D)will sell their shares only to investors say they do not smoke | C) invest only in companies that meet specified moral, ethical, or environmental standards. (12.3) |
| the ability to automatically buy additional fund shares using the dividend income generated by the fund is called | A)automatic investment plan B)automatic reinvestment plan C)systematic withdrawal plan D)conversion plan | B) automatic reinvestment plan (12.4) |
| automatic reinvestment plans | A)are a good way to avoid taxes on dividends and capital gains B)may involve exceptionally high transaction fees C)do not allow for the purchase of fractional shares D)are an excellent way to accumulate wealth through disciplined investing | D) are an excellent way to accumulate wealth through disciplined investing (12.4) |
| the conversion privilege provided by mutual fund families allows investors to---A)move from one fund to another without incurring any capital gains tax liability | B)be more aggressive since they can re-allocate their funds when market conditions change C)re-allocate their funds at any time as long as they pay an additional sales load on the transferred funds D)move from one fund family to another once every six m | B)be more aggressive since they can re-allocate their funds when market conditions change (12.4) |
| a mutual fund is generally more tax efficient when it has a ___ turnover rate and a ___ dividend yield | A)low;low B)low;high C)high;low D)high;high | A)low;low (12.5) |
| sue purchased a closed-end mutual fund that was trading at $42 and had an NAV of $38. Sue sold the fund today when the NAV is $44 and the market price is $43. The fund paid $1 in dividends over the past year. Sue's holding period return? | A)4.8% B)7.1% C)11.6% D)18.4% | A)4.8% (12.6) |
| investors are generally well advised to avoid mutual funds with | A)highly rated fund managers B)low fees and high tax efficiency C)consistently poor historical performance D)good performance in both up and down markets | C)consistently poor historical performance (12.6) |
| last year, a mutual fund had an NAV of $13.20 per share. over the past year the fund paid dividends of $0.70 per share and had a capital gains distribution of $1.20 per share. what is the holding period return assuming that the current NAV is $14.42? | A)13.2% B)14.4% C)21.6% D)23.6% | D)23.6% (12.6) |
| Marti is 31 years old and is saving for retirement. which one of the following portfolio allocations might best suit her situation if she is willing to accept a fair amount of risk in exchange for long-term capital appreciation? | A)60% bonds, 15% money funds and 25% real estate B)5%money funds, 10% bonds and 85% growth stocks C)25% bank CDs, 40% corporate bonds, 15% money market, 20% value stocks D)50% mortgage bonds, 5% money market, 45% municipal bonds | B)5%money funds, 10% bonds and 85% growth stocks (13.1) |
| fred and martha are in their seventies and retired. which one of the following sets of portfolio statistics might best suit their situation if their primary investment goal is current income with limited risk? | A)beta of 0.83 and a dividend yield of 6.3% B)beta of 0.86 and a dividend yield of 4.6% C)beta of 1.6 and a dividend yield of 6.4% D)beta of 1.1 and a dividend yield of 5.4% | A)beta of 0.83 and a dividend yield of 6.3% (13.1) |
| if an investor portfolio is comprised of a broad range of common stocks, best measure to se as a basis of comparison of performance is the | A)Dow Jones Industrial Average (DJIA) B)S&P 500 index C)down jones corporate bond index D)American stock exchange utilities index. | B)S&P 500 index (13.2) |
| For a stock investment, the dividend yield is calculated by | A) dividing a stock's annual cash dividend by its price B)dividing a stock's price by its annual cash dividend C)multiplying a stock's semi-annual dividend by two D)dividing the annual change in the stock's price plus its annual div amount by beg. yr p | A) dividing a stock's annual cash dividend by its price (13.3) |
| jan 1, stacy's portfolio was valued at $96,534. during the year stacy received 3285 in interest and 4100 in divs. also sold one stock at a gain of 850. the value of the pfolio on Dec 31 was 113201. at the end of june, she withdrew from the pfolio. | WHAT IS THE HOLDING PERIOD RETURN FOR THE YEAR? A)25.1% B)25.8% C)26.5% D)27.2% | C) 26.5% (13.3) |
| six months ago, suzanne purchased a stock for $28 a share. today she sold the stock for 32 a share. during the time she owned the stock, she received a total of 1.30 in dividends per share. what is her holding period return? | A)16.6 B)18.9% C)33.2% D)27.2% | B)18.9% (13.3) |
| feb 19, 2004 Ang bought 100 shares of ABC stock for 1712.50. she received a total of 125 in dividends and sold the stock on feb 22, 2005. net proceeds from the sale are 1892.40. Ang has a combined state and federal marginal tax rate of 32% | Her combined state and fed tax rate on both her cap gains in excess of one year and her div income is 18%. What is ANgela's after tax holding period return? A)11.0% B)12.1% C)13.2% D)14.6% | D)14.6% (13.3) |
| maria purchased $5000 of no-load mutual fund shares just over a year ago. she received 136 in div income and 201 in longterm capital gains distributions. today she sold her shares for 5062. Maria is in the 25% marginal tax bracket. | Cap gains with holding periods in excess of one year and div income are taxed at 15%. what is maria's after tax holding period return? A)6% B)6.6% C)6.8% D)8% | C)6.8% 13.3 |
| michelle owns a port that has a SD of 13%, beta of 1.05, total return of 10.5%. the risk-free rate is 4% and the overall market return is 9.8%. What is the value of Sharpe's measure for michelle's port? | A).005 B).06 C).5 D).81 | C).5 (13.4) |
| Ella owns a stock with beta of 1.34 and SD of 16.4%. total return f 14.8%. market risk free premium is 8.5% retrun on the market port was 12% what is the value of sharpe's measur of ells's portfolio? | A).21 B).38 C).69 D).9 | C).69 (13.4) |
| Sharp's measure of portfolio performace compares the risk premium on a portfolio to | A)a broad-based market index such as the S&P 500 B)the portfolio's SD of return C)the portfolio's beta D)the prevailing risk-free rate of return | B)the portfolio's SD of return (13.4) |
| phil has a port of 13.2% total return, beta of 1.48, SD is 13%. risk free rate of return is 4%, overall market has a total return of 11%. what is the value of Treynor's measure for phil's's port | A)2.1% B)6.2% C)7.1% D)8.9% | B)6.2% (13.4) |
| A port has a total return of 14.5%, beta of 1.54, SD of 17.6%. risk free rate of 4.5% and market return is 10.2%. Treynor's measure of this port? | A)2.8% B)3.7% C)6.5% D)9.4% | C)6.5% 13.4 |
| A port has a total return of 16.4%, beta of 1.63, SD of 14.5%. market return is 12.4%. Treynor measure is 6.3 Value of treynor measure of this portfolio? | A)2.5% B)6.3% C)18.4 D)27.6 | B) 6.3% (13.4) |
| Treynor's measure of portfolio performance focuses on | A)nondiversifiable risk B)diversifiable risk C)total risk D)the standard deviation of the portfolio | A)non diversifiable risk (13.4) |
| which of the following statements is correct if a portfolio has a jensen measure of return of zero | A)the portfolio has a total return of zero percent B)the portfolio earned exactly its expected return on a risk-adjusted basis C)the portfolio outperformed the market on a risk-adjusted basis D)the market provides a better return on a risk-adjusted bas | B) the portfolio earned exactly its expected return on a risk-adjusted basis (13.4) |
| the constant-ratio plan | A)requires the establishment of trigger points for portfolio rebalancing B)utilizes a predetermined ratio between desired current yield and expected capital gains C)strictly adheres to a by-and-hold strategy D)is an attempt to time the cyclical movemen | A)requires the establishment of trigger points for portfolio rebalancing (13.5) |
| the formula plan which requires the greates management attention and is also the most aggressive is called the ____ plan | A)dollare cost averaging B)constnt dollar C)constant ratio D)variable ratio | D)variable ratio (13.5) |
| dollar cost averaging is a procedure by which an investor | A)buys more stock as its price increases B)times investments in order to buy low and sell high C)invests a fixed dollar mount in security at fixed intervals D)maintains a constant ratio of conservative and aggressive investments | C)invests a fixed dollar mount in a security fixed intervals (13.5) |
| purchaser of stock options.......A)own a financial asset with benefits of firm ownership | B)have a claim on the profits of the firm issuing the underlying securities C)have the obligation to but or sell a predetermined amount of shares at the strike price D) have the right to buy or sell a certain number of underlying shares | D) have the right to buy or sell a certain number of underlying shares (14.1) |
| whcih one of the following statements concerning options is correct?>>>>>>>>>A) one option covers 1,000 shares of stock | B)a put gives the option holder the right to buy a stated amount of securities C)the owner of a call is entitled to the dividends paid on the underlying shares of stock D)option holders can profit on movements of the price of the underlying security | D)option holders can profit on movements of the price of the underlying security (14.1) |
| the maker of a put or call is the | A)company which issued the underlying security B)person who facilitates the trade on the floor of the exchange C)party who writes the option D)party who decides whether or not the option is exercised | C) party who writes the option (14.1) |
| one reason that writing options cn be viable and profitable investment strategu is that | A)the option writer collects the quarterly dividends B) most options expire unexrcised C)an option writer determines when the option is exercised D)an option writer can exercise the option to avoid a potential loss | B) most options expire unexrcised (14.1) |
| the ability to obtain a given equity position at a reduced capital investment, and therefore magnify returns, is known a | A)leverage B)straddling C)hedging D)triple witching | A)leverage 14.1) |
| One of the major disadvantages of options is | A)their lifespan B) their cost C)their lack of liquidity D)the risk to option buyers | A) their lifespan (14.3) |
Created by:
muhls54