Question 1

What is the closing value of one futures contract on March coffee?

Accepted Answer

A)   $25,444
B)   $25,875
C)   $25,969
D)   $26,044
E)   $26,438F) C) and D)
G) All of the above

Question 2

A speculator, not a hedger, would purchase a futures contract even though they had no interest or
ownership in the underlying asset.

Accepted Answer

A) True 
 B)False

Question 3

You are the buyer for a cereal company. You think you will need 230,000 bushels of corn next month. The futures contracts on corn are based on 5,000 bushels and are currently quoted at
261) 60 cents per bushel for delivery next month. If you want to hedge your cost risk, you should
_____ contracts at a current value of _____ per contract.

Accepted Answer

A)   buy 46; $13,080
B)   buy 230; $60,168
C)   sell 46; $601,680
D)   sell 230; $13,080,000
E)   sell 46; $60,168,000F) B) and D)
G) C) and E)

Question 4

The idea behind using a payoff proﬁle is to ﬁnd a ﬁnancial arrangement that has a proﬁle that:

Accepted Answer

A)   Directly images the risk proﬁle of the ﬁrm.
B)   Creates a downward sloping risk proﬁle when combined with the risk proﬁle of the ﬁrm.
C)   Eliminates the downside risk when combined with the risk proﬁle of the ﬁrm.
D)   Mirrors the proﬁle of selling a call once the arrangement is combined with the risk proﬁle of the ﬁrm.
E)   Mirrors the proﬁle of selling a put once the arrangement is combined with the risk proﬁle of the ﬁrm.F) C) and E)
G) A) and B)

Question 5

Which one of the following conditions when combined with long-term, ﬁxed-rate, low interest loans would tend to increase the ﬁnancial risk of lending institutions the most?

Accepted Answer

A)   Volatile short-term rates that are relatively low.
B)   Volatile short-term rates that are relatively high.
C)   Fixed short-term rates that are relatively low.
D)   Volatile long-term rates that are relatively low.
E)   Fixed long-term rates that are relatively low.F) B) and C)
G) A) and E)

Question 6

Options contracts are a zero sum game.

Accepted Answer

A) True 
 B)False

Question 7

An American call option is a contract that _______ the agreed upon quantity at the agreed upon price no later than the expiration date.

Accepted Answer

A)   Obligates the owner to purchase.
B)   Gives the owner the option, but not the obligation, to purchase.
C)   Grants the owner the option, but not the obligation, to sell.
D)   Obligates the buyer to purchase, at the discretion of the seller.
E)   Obligates the owner to sell.F) B) and D)
G) A) and E)

Question 8

Your ﬁrm is required by its bond indenture to make ﬁxed-rate interest payments but prefers to make ﬂoating-rate payments. Another ﬁrm is obligated by its bond indenture to make ﬂoating-rate
Payments but desires to make ﬁxed-rate payments. You can help both ﬁrms achieve their
Preferences by arranging a(n)  ___________.

Accepted Answer

A)   Currency swap.
B)   Commodity swap.
C)   Interest rate forward contract.
D)   Interest rate option contract.
E)   Interest rate swap.F) A) and B)
G) A) and C)

Question 9

S&P 500 INDEX (CME) ; $500 times index May 12, 2007  What was the lowest value of the June contract on the day quoted?

Accepted Answer

A)   $314,525
B)   $407,225
C)   $414,300
D)   $419,500
E)   $420,675F) A) and B)
G) A) and E)

Question 10

You speculate in the market by selling 15 gold futures contracts when the futures price is $648.50 per ounce. The price on the contract maturity date is $662.60. What is your total proﬁt or loss if the
Contract size is 100 ounces?

Accepted Answer

A)   -$21,150.00
B)   -$211.50
C)   $211.50
D)   $2,115.00
E)   $21,150.0F) A) and E)
G) None of the above

Question 11

You sell one futures contract for 112,000 pounds of sugar with a settlement price of 20.87 cents per pound. If the price is 19.63 cents per pound at the contract expiration, what is your payoff?

Accepted Answer

A)   -$138,880
B)   -$122,420
C)   $115,378
D)   $122,420
E)   $138,880F) A) and E)
G) None of the above

Question 12

Ted purchased two October futures contracts on cotton at the closing price yesterday and sold the contracts at the opening price today. What is the amount of Ted's proﬁt or loss on this investment?

Accepted Answer

A)   -$500
B)   -$350
C)   $175
D)   $1,425
E)   $1,650F) B) and D)
G) A) and D)

Question 13

Risk proﬁle can best be deﬁned as:

Accepted Answer

A)   Reducing a ﬁrm's exposure to price or rate ﬂuctuations
B)   A ﬁnancial asset that represents a claim to another ﬁnancial asset.
C)   A plot showing how the value of the ﬁrm is affected by changes in prices or rates.
D)   Short-run ﬁnancial risk arising from the need to buy or sell at uncertain prices or rates in the near future.
E)   Long-term ﬁnancial risk arising from permanent changes in prices or other economic fundamentals.F) A) and E)
G) B) and E)

Question 14

Provide a suitable deﬁnition of derivative security.

Accepted Answer

A ﬁnancial asset tha...

Question 15

Commodity prices, inﬂation, exchange rates and interest rates have become more volatile over the
past thirty years.

Accepted Answer

A) True 
 B)False

Question 16

An option contract can be used to speculate in the market.

Accepted Answer

A) True 
 B)False

Question 17

Provide a suitable deﬁnition of cross-hedging.

Accepted Answer

Hedging an asset wit...

Question 18

A swap contract is an agreement to:

Accepted Answer

A)   Sell a speciﬁc asset at a predetermined price sometime in the future.
B)   Hedge an asset with a different asset.
C)   Exchange speciﬁed cash ﬂows at speciﬁed intervals in the future.
D)   Exchange one currency for a speciﬁed amount of another currency.
E)   Realize gains and losses on a daily basis.F) A) and E)
G) A) and D)

Question 19

A plot showing how the value of the ﬁrm is affected by changes in prices or rates is called a:

Accepted Answer

A)   Security market line.
B)   Net present value proﬁle.
C)   Risk proﬁle.
D)   Scatter plot.E) A) and B)
F) A) and C)

Question 20

What is the total settlement value of the open interest in the May coffee futures?

Accepted Answer

A)   $59,482,988
B)   $62,506,781
C)   $63,635,063
D)   $135,971,400
E)   $138,276,000F) C) and D)
G) A) and C)

Exam 24: Options and Corporate Finance

Options contracts are a zero sum game.

Correct Answer
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Correct Answer
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S&P 500 INDEX (CME) ; $500 times index May 12, 2007 What was the lowest value of the June contract on the day quoted?

Correct Answer
verified

Risk proﬁle can best be deﬁned as:

Correct Answer
verified

A plot showing how the value of the ﬁrm is affected by changes in prices or rates is called a:

Correct Answer
verified

What is the closing value of one futures contract on March coffee?

Correct Answer
verified

What is the total settlement value of the open interest in the May coffee futures?

Correct Answer
verified

Provide a suitable deﬁnition of cross-hedging.

Correct Answer
verified
Hedging an asset wit...
View Answer

Provide a suitable deﬁnition of derivative security.

Correct Answer
verified
A ﬁnancial asset tha...
View Answer

The idea behind using a payoff proﬁle is to ﬁnd a ﬁnancial arrangement that has a proﬁle that:

Correct Answer
verified

A swap contract is an agreement to:

Correct Answer
verified

Ted purchased two October futures contracts on cotton at the closing price yesterday and sold the contracts at the opening price today. What is the amount of Ted's proﬁt or loss on this investment?

Correct Answer
verified

Which one of the following conditions when combined with long-term, ﬁxed-rate, low interest loans would tend to increase the ﬁnancial risk of lending institutions the most?

Correct Answer
verified

Correct Answer
verified

A speculator, not a hedger, would purchase a futures contract even though they had no interest or ownership in the underlying asset.

Correct Answer
verified

An option contract can be used to speculate in the market.

Correct Answer
verified

You speculate in the market by selling 15 gold futures contracts when the futures price is $648.50 per ounce. The price on the contract maturity date is $662.60. What is your total proﬁt or loss if the Contract size is 100 ounces?

Correct Answer
verified

Commodity prices, inﬂation, exchange rates and interest rates have become more volatile over the past thirty years.

Correct Answer
verified

An American call option is a contract that _______ the agreed upon quantity at the agreed upon price no later than the expiration date.

Correct Answer
verified

You sell one futures contract for 112,000 pounds of sugar with a settlement price of 20.87 cents per pound. If the price is 19.63 cents per pound at the contract expiration, what is your payoff?

Correct Answer
verified

Exam 24: Options and Corporate Finance

Options contracts are a zero sum game.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

S&P 500 INDEX (CME) ; $500 times index May 12, 2007 What was the lowest value of the June contract on the day quoted?

Correct AnswerverifiedShow Answer

Risk proﬁle can best be deﬁned as:

Correct AnswerverifiedShow Answer

A plot showing how the value of the ﬁrm is affected by changes in prices or rates is called a:

Correct AnswerverifiedShow Answer

What is the closing value of one futures contract on March coffee?

Correct AnswerverifiedShow Answer

What is the total settlement value of the open interest in the May coffee futures?

Correct AnswerverifiedShow Answer

Provide a suitable deﬁnition of cross-hedging.

Correct AnswerverifiedHedging an asset wit...View AnswerShow Answer

Provide a suitable deﬁnition of derivative security.

Correct AnswerverifiedA ﬁnancial asset tha...View AnswerShow Answer

The idea behind using a payoff proﬁle is to ﬁnd a ﬁnancial arrangement that has a proﬁle that:

Correct AnswerverifiedShow Answer

A swap contract is an agreement to:

Correct AnswerverifiedShow Answer

Ted purchased two October futures contracts on cotton at the closing price yesterday and sold the contracts at the opening price today. What is the amount of Ted's proﬁt or loss on this investment?

Correct AnswerverifiedShow Answer

Which one of the following conditions when combined with long-term, ﬁxed-rate, low interest loans would tend to increase the ﬁnancial risk of lending institutions the most?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A speculator, not a hedger, would purchase a futures contract even though they had no interest or ownership in the underlying asset.

Correct AnswerverifiedShow Answer

An option contract can be used to speculate in the market.

Correct AnswerverifiedShow Answer

You speculate in the market by selling 15 gold futures contracts when the futures price is $648.50 per ounce. The price on the contract maturity date is $662.60. What is your total proﬁt or loss if the Contract size is 100 ounces?

Correct AnswerverifiedShow Answer

Commodity prices, inﬂation, exchange rates and interest rates have become more volatile over the past thirty years.

Correct AnswerverifiedShow Answer

An American call option is a contract that _______ the agreed upon quantity at the agreed upon price no later than the expiration date.

Correct AnswerverifiedShow Answer

You sell one futures contract for 112,000 pounds of sugar with a settlement price of 20.87 cents per pound. If the price is 19.63 cents per pound at the contract expiration, what is your payoff?

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Hedging an asset wit...
View Answer

Correct Answer
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A ﬁnancial asset tha...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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