Question 1

An investor who shifts risk is referred to as which one of the following?

Accepted Answer

A) hedger 
B) short seller 
C) speculator 
D) broker 
E) dealer 
A) hedger 
B) short seller 
C) speculator 
D) broker 
E) dealer

Question 2

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 3

You manage a $265 million bond portfolio which has a duration of 7.1 years.You want to hedge this portfolio with Treasury note futures that have a duration of 7.6 years and a futures price of 116.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) 1,867 contracts 
E) 2,134 contracts 
A) 1,371 contracts 
B) 1,400 contracts 
C) 1,550 contracts 
D) 1,867 contracts 
E) 2,134 contracts

Question 4

Which of the following features apply to a futures contract?
I.zero-sum game
II.derivative security
III.maturity date
IV.settlement procedure

Accepted Answer

A) I and II only 
B) I and III only 
C) II and III only 
D) II, III, and IV only 
E) I, II, III, and IV 
A) I and II only 
B) I and III only 
C) II and III only 
D) II, III, and IV only 
E) I, II, III, and IV

Question 5

You own a portfolio which is valued at $6.4 million and which has a beta of 1.27.You would like to create a riskless portfolio by hedging with S&P 500 futures contracts.The contract size is $250 times the index level.How many futures contracts are needed if the current S&P 500 index is 1406?

Accepted Answer

A) short 16 contracts 
B) short 18 contracts 
C) short 23 contracts 
D) long 18 contracts 
E) long 23 contracts 
A) short 16 contracts 
B) short 18 contracts 
C) short 23 contracts 
D) long 18 contracts 
E) long 23 contracts

Question 6

Which one of the following is the price of a commodity designated for delivery today?

Accepted Answer

A) daily price 
B) marked price 
C) margin price 
D) arbitrage price 
E) cash price 
A) daily price 
B) marked price 
C) margin price 
D) arbitrage price 
E) cash price

Question 7

You purchased 3 DJIA index futures at a price of 13,200.The contract size is $10 times the level of the index.The futures are maturing today when the price is 12,758.What is the amount of your profit or loss?

Accepted Answer

A) -$1,326 
B) -$1,408 
C) -$13,260 
D) -$14,080 
E) -$15,260 
A) -$1,326 
B) -$1,408 
C) -$13,260 
D) -$14,080 
E) -$15,260

Question 8

An investor who accepts the risk of a loss in exchange for the chance to earn a profit is referred to as which one of the following?

Accepted Answer

A) hedger 
B) short seller 
C) speculator 
D) broker 
E) dealer 
A) hedger 
B) short seller 
C) speculator 
D) broker 
E) dealer

Question 9

Your broker requires an initial margin of $6,075 per futures contract on wheat and a maintenance margin of $4,500 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 786.Today,the settlement quote is 808.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 10

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 11

Which one of the following is a difference between a forward contract and a futures contract?

Accepted Answer

A) Forward contracts are based on commodities while futures contracts are based on financial instruments. 
B) The price of the asset exchanged is determined when a forward contract is entered while the price is set on the exchange date for a futures contract. 
C) A forward contract is a formal agreement while a futures contract is an informal agreement. 
D) Futures contracts are managed through an organized exchange while forward contracts are not. 
E) There are no differences between forward and futures contracts. 
A) Forward contracts are based on commodities while futures contracts are based on financial instruments. 
B) The price of the asset exchanged is determined when a forward contract is entered while the price is set on the exchange date for a futures contract. 
C) A forward contract is a formal agreement while a futures contract is an informal agreement. 
D) Futures contracts are managed through an organized exchange while forward contracts are not. 
E) There are no differences between forward and futures contracts.

Question 12

Will purchased 3 futures contracts on corn.The contract size is 5,000 bushels and the price is quoted in cents per bushel.Assume the initial margin requirement is 4.5 percent of the contract value.What is the amount of the initial margin if the futures quote is 624?

Accepted Answer

A) $140.40 
B) $421.20 
C) $1,404 
D) $2,808 
E) $4,212 
A) $140.40 
B) $421.20 
C) $1,404 
D) $2,808 
E) $4,212

Question 13

The spot price on cocoa is $2,880 a ton.The futures price is $2,760 a ton.The basis is _____ and the market is a(n)_____ market.

Accepted Answer

A) -120; carrying-charge 
B) -120; inverted 
C) 20; inverted 
D) 120; carrying-charge 
E) 120; inverted 
A) -120; carrying-charge 
B) -120; inverted 
C) 20; inverted 
D) 120; carrying-charge 
E) 120; inverted

Question 14

The Shirt Factory purchased 10 futures contracts on cotton at a quoted price of 71.14 as a hedge against its inventory needs.At the time it actually needed the cotton,the spot price was 71.56.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) $2,100 
E) $3,000 
A) $90 
B) $560 
C) $1,280 
D) $2,100 
E) $3,000

Question 15

How is a futures contract on the S&P 500 settled?

Accepted Answer

A) cash 
B) shares of stock selected by the contract buyer 
C) shares of stock selected by the contract seller 
D) shares of stock equivalent to those in the index 
E) delivery of a Treasury bill equal in value to the settlement amount 
A) cash 
B) shares of stock selected by the contract buyer 
C) shares of stock selected by the contract seller 
D) shares of stock equivalent to those in the index 
E) delivery of a Treasury bill equal in value to the settlement amount

Question 16

Which one of the following statements is correct?

Accepted Answer

A) Futures contracts must be held to maturity. 
B) Futures contracts can be closed out only by contract buyers. 
C) Futures contracts can be closed out, but only during the week prior to maturity. 
D) You cannot avoid accepting delivery once you purchase a futures contract. 
E) Futures contracts can be closed out by entering a reverse trade. 
A) Futures contracts must be held to maturity. 
B) Futures contracts can be closed out only by contract buyers. 
C) Futures contracts can be closed out, but only during the week prior to maturity. 
D) You cannot avoid accepting delivery once you purchase a futures contract. 
E) Futures contracts can be closed out by entering a reverse trade.

Question 17

What is the difference in the value of one November heating oil contract between this day's opening and closing prices?

Accepted Answer

A) $59.40 
B) $249.48 
C) $2,494.80 
D) $2,970.00 
E) $5,940.00 
A) $59.40 
B) $249.48 
C) $2,494.80 
D) $2,970.00 
E) $5,940.00

Question 18

Assume the futures price of a commodity is equal to the future value of the cash price,calculated at the risk-free rate.Given this,which one of the following terms applies to the market for this commodity?

Accepted Answer

A) positive basis equilibrium 
B) humped market 
C) inverted market 
D) time equilibrium 
E) spot-futures parity 
A) positive basis equilibrium 
B) humped market 
C) inverted market 
D) time equilibrium 
E) spot-futures parity

Question 19

A farmer has a long position in barley and hedges it with a short position in wheat.Which one of the following terms applies to this situation?

Accepted Answer

A) cross-arbitrage 
B) parity play 
C) market arbitrage 
D) cross-hedge 
E) program trade 
A) cross-arbitrage 
B) parity play 
C) market arbitrage 
D) cross-hedge 
E) program trade

Question 20

Southern Fields has an inventory of 838,000 pounds of sugar.The firm placed a partial hedge on this inventory by selling 6 futures contracts at 9.56.The futures contracts are based on 112,000 pounds and quoted in cents per pound.At the time the firm sold the sugar,the spot rate was 9.63.How much profit did the firm lose because of the hedge?

Accepted Answer

A) $470.40 
B) $586.60 
C) $688.20 
D) $4,704.00 
E) $5,866.00 
A) $470.40 
B) $586.60 
C) $688.20 
D) $4,704.00 
E) $5,866.00

An investor who shifts risk is referred to as which one of the following?

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

Which of the following features apply to a futures contract? I.zero-sum game II.derivative security III.maturity date IV.settlement procedure

You own a portfolio which is valued at $6.4 million and which has a beta of 1.27.You would like to create a riskless portfolio by hedging with S&P 500 futures contracts.The contract size is $250 times the index level.How many futures contracts are needed if the current S&P 500 index is 1406?

Which one of the following is the price of a commodity designated for delivery today?

You purchased 3 DJIA index futures at a price of 13,200.The contract size is $10 times the level of the index.The futures are maturing today when the price is 12,758.What is the amount of your profit or loss?

An investor who accepts the risk of a loss in exchange for the chance to earn a profit is referred to as which one of the following?

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 is a difference between a forward contract and a futures contract?

Will purchased 3 futures contracts on corn.The contract size is 5,000 bushels and the price is quoted in cents per bushel.Assume the initial margin requirement is 4.5 percent of the contract value.What is the amount of the initial margin if the futures quote is 624?

The spot price on cocoa is $2,880 a ton.The futures price is $2,760 a ton.The basis is _ and the market is a(n)_ market.

How is a futures contract on the S&P 500 settled?

Which one of the following statements is correct?

What is the difference in the value of one November heating oil contract between this day's opening and closing prices?

Assume the futures price of a commodity is equal to the future value of the cash price,calculated at the risk-free rate.Given this,which one of the following terms applies to the market for this commodity?

A farmer has a long position in barley and hedges it with a short position in wheat.Which one of the following terms applies to this situation?

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

An investor who shifts risk is referred to as which one of the following?

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

Which of the following features apply to a futures contract? I.zero-sum game II.derivative security III.maturity date IV.settlement procedure

You own a portfolio which is valued at $6.4 million and which has a beta of 1.27.You would like to create a riskless portfolio by hedging with S&P 500 futures contracts.The contract size is $250 times the index level.How many futures contracts are needed if the current S&P 500 index is 1406?

Which one of the following is the price of a commodity designated for delivery today?

You purchased 3 DJIA index futures at a price of 13,200.The contract size is $10 times the level of the index.The futures are maturing today when the price is 12,758.What is the amount of your profit or loss?

An investor who accepts the risk of a loss in exchange for the chance to earn a profit is referred to as which one of the following?

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 is a difference between a forward contract and a futures contract?

Will purchased 3 futures contracts on corn.The contract size is 5,000 bushels and the price is quoted in cents per bushel.Assume the initial margin requirement is 4.5 percent of the contract value.What is the amount of the initial margin if the futures quote is 624?

The spot price on cocoa is $2,880 a ton.The futures price is $2,760 a ton.The basis is _____ and the market is a(n)_____ market.

How is a futures contract on the S&P 500 settled?

Which one of the following statements is correct?

What is the difference in the value of one November heating oil contract between this day's opening and closing prices?

Assume the futures price of a commodity is equal to the future value of the cash price,calculated at the risk-free rate.Given this,which one of the following terms applies to the market for this commodity?

A farmer has a long position in barley and hedges it with a short position in wheat.Which one of the following terms applies to this situation?

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

The spot price on cocoa is $2,880 a ton.The futures price is $2,760 a ton.The basis is _ and the market is a(n)_ market.