Question 1

Which one of the following best defines a carrying-charge market?

Accepted Answer

A)  market where interest is charged on the margin balance 
B)  cash price is less than the futures price 
C)  positive basis market 
D)  spot market price is greater than the cash price 
E)  spot market price exceeds the futures price 
A)  market where interest is charged on the margin balance 
B)  cash price is less than the futures price 
C)  positive basis market 
D)  spot market price is greater than the cash price 
E)  spot market price exceeds the futures price

Question 2

You currently own a stock portfolio that has a beta of 1.2.If you fully hedge your stock portfolio you will effectively change the portfolio's beta to which one of the following?

Accepted Answer

A)  0 
B)  1 
C)  1 / 1.2 
D)  1.2 
E)  1.22 
A)  0 
B)  1 
C)  1 / 1.2 
D)  1.2 
E)  1.22

Question 3

You have a market position which allows you to profit when market prices increase but causes you a loss when market prices decline.This position is defined by which one of the following terms?

Accepted Answer

A)  forward position 
B)  futures position 
C)  long position 
D)  short position 
E)  speculative position 
A)  forward position 
B)  futures position 
C)  long position 
D)  short position 
E)  speculative position

Question 4

Which one of the following is a contract managed by an organized exchange that allows a buyer and seller to agree on a price today for an exchange of goods that will occur sometime in the future?

Accepted Answer

A)  futures contract 
B)  spot market 
C)  cash market 
D)  forward contract 
E)  discounted contract 
A)  futures contract 
B)  spot market 
C)  cash market 
D)  forward contract 
E)  discounted contract

Question 5

What is the closing value of one December futures contract on corn?

Accepted Answer

A)  $6.17 
B)  $617.00 
C)  $30,850 
D)  $308,500 
E)  $3,085,000 
A)  $6.17 
B)  $617.00 
C)  $30,850 
D)  $308,500 
E)  $3,085,000

Question 6

You manage a $225 million bond portfolio which has a duration of 6.8 years.You want to hedge this portfolio with Treasury note futures that have a duration of 7.2 years and a futures price of 114.U.S.Treasury notes futures contracts are based on a par value of $100,000 and quoted as a percentage of par.How many contracts do you need to sell to complete this hedge?

Accepted Answer

A)  1,371 contracts 
B)  1,400 contracts 
C)  1,550 contracts 
D)  1,864 contracts 
E)  2,134 contracts 
A)  1,371 contracts 
B)  1,400 contracts 
C)  1,550 contracts 
D)  1,864 contracts 
E)  2,134 contracts

Question 7

By how much did one September futures contract on wheat vary during today's trading?

Accepted Answer

A)  $0.115 
B)  $1.15 
C)  $11.50 
D)  $115.00 
E)  $575.00 
A)  $0.115 
B)  $1.15 
C)  $11.50 
D)  $115.00 
E)  $575.00

Question 8

When does the holder of a short position realize a profit?

Accepted Answer

A)  when prices rise 
B)  when prices either remain constant or rise 
C)  when prices remain constant 
D)  when prices either remain constant or decline 
E)  when prices decline 
A)  when prices rise 
B)  when prices either remain constant or rise 
C)  when prices remain constant 
D)  when prices either remain constant or decline 
E)  when prices decline

Question 9

The T-Shirt Factory purchased 8 futures contracts on cotton at a quoted price of 64.50 as a hedge against its inventory needs.At the time it actually needed the cotton,the spot price was 65.10.Cotton futures are based on 50,000 pounds and quoted in cents per pound.How much did the Shirt Factory save by hedging cotton?

Accepted Answer

A)  $90 
B)  $560 
C)  $1,280 
D)  $2,400 
E)  $3,000 
A)  $90 
B)  $560 
C)  $1,280 
D)  $2,400 
E)  $3,000

Question 10

If spot-futures parity exists for an index future then the future price must equal the:

Accepted Answer

A)  spot price. 
B)  present value of the spot price at the risk-free rate. 
C)  present value of the spot price at the market rate. 
D)  future value of the spot price at the risk-free rate. 
E)  future value of the spot price at the market rate. 
A)  spot price. 
B)  present value of the spot price at the risk-free rate. 
C)  present value of the spot price at the market rate. 
D)  future value of the spot price at the risk-free rate. 
E)  future value of the spot price at the market rate.

Question 11

You are trying to value a 3-month futures contract on a stock.The market rate of return is 11.2 percent,the risk-free rate is 3.8 percent,and the dividend yield on the stock is 2.6 percent.The stock is currently selling for $33 a share.What is the value of "T" as used in the formula for computing the future stock price (FT = S(1 - r)^T)?

Accepted Answer

A)  0.112 
B)  0.250 
C)  0.026 
D)  0.038 
E)  0.064 
A)  0.112 
B)  0.250 
C)  0.026 
D)  0.038 
E)  0.064

Question 12

A fully-hedged stock portfolio will have a beta equal to which one of the following?

Accepted Answer

A)  an average asset 
B)  U.S. Treasury bill 
C)  S&P 500 
D)  the beta of the stock portfolio exclusive of the hedge 
E)  one-half of the beta of the stock portfolio exclusive of the hedge 
A)  an average asset 
B)  U.S. Treasury bill 
C)  S&P 500 
D)  the beta of the stock portfolio exclusive of the hedge 
E)  one-half of the beta of the stock portfolio exclusive of the hedge

Question 13

The spot rate on a non-dividend-paying stock is $42.30.The risk-free rate is 3.75 percent and the market rate is 11.50 percent.What is the three-month futures rate if spot-futures parity exists?

Accepted Answer

A)  $42.14 
B)  $42.54 
C)  $42.69 
D)  $42.82 
E)  $43.89 
A)  $42.14 
B)  $42.54 
C)  $42.69 
D)  $42.82 
E)  $43.89

Question 14

Your broker requires an initial margin of $6,100 per futures contract on wheat and a maintenance margin of $4,400 per contract.Wheat futures contracts are based on 5,000 bushels and quoted in cents per bushel.You sold one wheat futures contract yesterday at the closing settlement price quote of 780.Today,the settlement quote is 802.Will you receive a margin call and if so,for what amount? All margin calls restore the margin level to its initial level.

Accepted Answer

A)  no margin call 
B)  call for $475 
C)  call for $1,100 
D)  call for $4,750 
E)  call for $11,000 
A)  no margin call 
B)  call for $475 
C)  call for $1,100 
D)  call for $4,750 
E)  call for $11,000

Question 15

You purchased four September corn futures contracts at what turned out to be the lowest price of the day and sold those contracts at today's close.What is your total profit or loss on this investment?

Accepted Answer

A)  -$287.50 
B)  -$1,100 
C)  -$2,875 
D)  $1,100 
E)  $14,250 
A)  -$287.50 
B)  -$1,100 
C)  -$2,875 
D)  $1,100 
E)  $14,250

Question 16

Which one of the following statements is true regarding futures contracts?

Accepted Answer

A)  Futures prices are generally set equal to the spot price on the delivery date. 
B)  Futures contracts generally grant the buyer the option to accept only a portion of the contract. 
C)  Cost and convenience are the two key considerations when establishing the settlement procedures. 
D)  The seller of a futures contract has the option to deliver cash in an amount equal to the contract value in lieu of the underlying asset. 
E)  The buyer and seller of the contract negotiate the price on the maturity date. 
A)  Futures prices are generally set equal to the spot price on the delivery date. 
B)  Futures contracts generally grant the buyer the option to accept only a portion of the contract. 
C)  Cost and convenience are the two key considerations when establishing the settlement procedures. 
D)  The seller of a futures contract has the option to deliver cash in an amount equal to the contract value in lieu of the underlying asset. 
E)  The buyer and seller of the contract negotiate the price on the maturity date.

Question 17

A futures price is a price that is negotiated ________ and paid ________.

Accepted Answer

A)  today; in the future 
B)  today; today 
C)  in the future; in the future 
D)  in the future; today 
E)  either today or in the future; in the future 
A)  today; in the future 
B)  today; today 
C)  in the future; in the future 
D)  in the future; today 
E)  either today or in the future; in the future

Question 18

The T-Shirt Factory purchased 12 futures contracts on cotton at a quoted price of 55.50 as a hedge against its inventory needs.At the time it actually needed the cotton,the spot price was 56.10.Cotton futures are based on 50,000 pounds and quoted in cents per pound.How much did the Shirt Factory save by hedging cotton?

Accepted Answer

A)  $90 
B)  $560 
C)  $1,280 
D)  $2,400 
E)  $3,600 
A)  $90 
B)  $560 
C)  $1,280 
D)  $2,400 
E)  $3,600

Question 19

What was the price per pound of December cotton at the end of this trading day?

Accepted Answer

A)  $0.7885 
B)  $0.8036 
C)  $0.8059 
D)  $0.8063 
E)  $0.8090 
A)  $0.7885 
B)  $0.8036 
C)  $0.8059 
D)  $0.8063 
E)  $0.8090

Question 20

Your broker requires an initial margin of $4,500 per futures contract on soybeans and a maintenance margin of $3,000 per contract.Soybean futures contracts are based on 5,000 bushels and quoted in cents per bushel.Yesterday,you bought 5 soybean futures contracts at the closing settlement price of 1372.Today,the settlement quote is 1340.All margin calls restore margin levels to their initial margin level.Will you receive a margin call and if so,for what amount?

Accepted Answer

A)  no margin call 
B)  call for $1,425 
C)  call for $2,487 
D)  call for $4,650 
E)  call for $8,000 
A)  no margin call 
B)  call for $1,425 
C)  call for $2,487 
D)  call for $4,650 
E)  call for $8,000

Which one of the following best defines a carrying-charge market?

You currently own a stock portfolio that has a beta of 1.2.If you fully hedge your stock portfolio you will effectively change the portfolio's beta to which one of the following?

You have a market position which allows you to profit when market prices increase but causes you a loss when market prices decline.This position is defined by which one of the following terms?

Which one of the following is a contract managed by an organized exchange that allows a buyer and seller to agree on a price today for an exchange of goods that will occur sometime in the future?

What is the closing value of one December futures contract on corn?

By how much did one September futures contract on wheat vary during today's trading?

When does the holder of a short position realize a profit?

If spot-futures parity exists for an index future then the future price must equal the:

A fully-hedged stock portfolio will have a beta equal to which one of the following?

The spot rate on a non-dividend-paying stock is $42.30.The risk-free rate is 3.75 percent and the market rate is 11.50 percent.What is the three-month futures rate if spot-futures parity exists?

You purchased four September corn futures contracts at what turned out to be the lowest price of the day and sold those contracts at today's close.What is your total profit or loss on this investment?

Which one of the following statements is true regarding futures contracts?

A futures price is a price that is negotiated and paid .

What was the price per pound of December cotton at the end of this trading day?

A Brief History of Risk and Return

The Investment Process

Overview of Security Types

Mutual Funds and Other Investment Companies

The Stock Market

Common Stock Valuation

Stock Price Behavior and Market Efficiency

Behavioral Finance and the Psychology of Investing

Interest Rates

Bond Prices and Yields

Diversification and Risky Asset Allocation

Return,Risk,and the Security Market Line

Performance Evaluation and Risk Management

Stock Options

Option Valuation

Projecting Cash Flow and Earnings

Corporate and Government Bonds

Global Economic Activity and Industry Analysis

Mortgage-Backed Securities

Filters

Exam 14: Futures Contracts

Which one of the following best defines a carrying-charge market?

You currently own a stock portfolio that has a beta of 1.2.If you fully hedge your stock portfolio you will effectively change the portfolio's beta to which one of the following?

You have a market position which allows you to profit when market prices increase but causes you a loss when market prices decline.This position is defined by which one of the following terms?

Which one of the following is a contract managed by an organized exchange that allows a buyer and seller to agree on a price today for an exchange of goods that will occur sometime in the future?

What is the closing value of one December futures contract on corn?

By how much did one September futures contract on wheat vary during today's trading?

When does the holder of a short position realize a profit?

If spot-futures parity exists for an index future then the future price must equal the:

A fully-hedged stock portfolio will have a beta equal to which one of the following?

The spot rate on a non-dividend-paying stock is $42.30.The risk-free rate is 3.75 percent and the market rate is 11.50 percent.What is the three-month futures rate if spot-futures parity exists?

You purchased four September corn futures contracts at what turned out to be the lowest price of the day and sold those contracts at today's close.What is your total profit or loss on this investment?

Which one of the following statements is true regarding futures contracts?

A futures price is a price that is negotiated ________ and paid ________.

What was the price per pound of December cotton at the end of this trading day?

A Brief History of Risk and Return

The Investment Process

Overview of Security Types

Mutual Funds and Other Investment Companies

The Stock Market

Common Stock Valuation

Stock Price Behavior and Market Efficiency

Behavioral Finance and the Psychology of Investing

Interest Rates

Bond Prices and Yields

Diversification and Risky Asset Allocation

Return,Risk,and the Security Market Line

Performance Evaluation and Risk Management

Stock Options

Option Valuation

Projecting Cash Flow and Earnings

Corporate and Government Bonds

Global Economic Activity and Industry Analysis

Mortgage-Backed Securities

Filters

A futures price is a price that is negotiated and paid .