Managerial Economics

Topics: Futures contract, Call option, Option Pages: 11 (2465 words) Published: March 6, 2013
Week 7 : Week 7 - Exam #1

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1. What phrase is often used interchangeably with the phrase market capitalization? (Points : 1)         Market value 
       Open Interest 
       Trading volume 
       Notional value |
2. Assume that an investor lends 100 shares of Jiffy, Inc. common stock to a short seller. The bid-ask prices are $32.00 - $32.50. When the position is closed the bid-ask prices are $32.50 - $33.00. The commission rate is 0.5%. The market interest rate is 5.0% and the short rebate rate is 3.0%. Calculate the gain or loss to the lender. Assume the lender is not subject to a bid-ask loss or commissions. (Points : 1)         $164.00 loss 

       $100.00 gain 
       $100.00 loss 
       $164.00 gain |
3. During the growing season a corn farmer sells short corn futures contracts in an amount equal to her crop. If upon harvesting and selling her crop she maintains the contracts, she is then considered a: (Points : 1)         Speculator 

       None of the above |
4. What kind of risk does not disappear when spread across many investors? (Points : 1)         Diversifiable 
       Nondiversifiable |
5. Who from the following list would be considered a speculator by entering into a futures or options contract on commodities?(Points : 1)         Corn delivery truck driver 
       Food manufacturer 
       None of the above |
6. Assume that you purchase 100 shares of Jiffy, Inc. common stock at the bid-ask prices of $32.00 - $32.50. When you sell the bid-ask prices are $32.50 - $33.00. If you pay a commission rate of 0.5%, what is your profit or loss? (Points : 1)         $32.50 loss 

       $16.25 loss 
       $32.50 gain |
7. Which of the following is not a derivative instrument? (Points : 1)         Installment sales agreement 
       Option agreement to buy land 
       Contract to sell corn 
       Mortgage backed security |
8. According to trading volume data tabulated for 2002, which international futures exchange market experienced the highest total trading volume in the world? (Points : 1)         Chicago Board of Trade 

       Chicago Mercantile Exchange 
       New York Mercantile Exchange 
       Eurex |
9. All of the following are financially engineered products, except: (Points : 1)         Mortgage backed security 
       Principal only 
       Interest only |
10. What phrase might be used to describe the initial transaction a short seller initiates when shorting an equity security? (Points : 1)         Covering 
       Borrow |
11. The total number of contracts which exist and are delivery or payment is referred to as the ___________________. (Points : 1)         Market value 
       Notional value 
       Trading volume 
       Open Interest |
12. This measures the number of financial claims that change hands either daily or annually. (Points : 1)         Open Interest 
       Notional value 
       Market value 
       Trading volume |
13. A mutual fund is engaged in the short term and temporary purchase of index futures, for purposes of minimizing its cash exposures. Which "use" most closely explains their actions? (Points : 1)         Speculation 

       Reduced transaction costs 
       Regulatory arbitrage 
       Risk management |
14. Which of the following phrases is used to describe an option where immediate exercise results in a negative payoff? (Points : 1)         At-the-money 
       Out-of-the-money |
15. The premium on a long term call option on the market index with an exercise price of 950 is $12.00 when originally purchased. After 6 months the position is closed and the index spot price is 965. If interest rates are 0.5% per month, what is the Call Payoff?(Points : 1)         $12.00 ...
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