Question 1

When the seller of a futures contract is granted a choice among various assets to deliver,the seller is said to have which one of the following options?

Accepted Answer

A) right-to-choose option 
B) spot or futures option 
C) cheapest-to-deliver option 
D) mark-to-market option 
E) flexible delivery option 
A) right-to-choose option 
B) spot or futures option 
C) cheapest-to-deliver option 
D) mark-to-market option 
E) flexible delivery option

Question 2

The spot price for a non-dividend-paying stock is $24.The risk-free rate is 2.8 percent and the market rate is 10.6 percent.What is the 6-month futures price of this stock if spot-futures parity exists?

Accepted Answer

A) $24.33 
B) $24.41 
C) $24.54 
D) $24.59 
E) $24.70 
A) $24.33 
B) $24.41 
C) $24.54 
D) $24.59 
E) $24.70

Question 3

A financial instrument on which a futures contract is based is called which one of the following?

Accepted Answer

A) hedged security 
B) short position 
C) long position 
D) speculative asset 
E) underlying asset 
A) hedged security 
B) short position 
C) long position 
D) speculative asset 
E) underlying asset

Question 4

You are a wheat farmer with a crop that will be ready to harvest in approximately three months.How can you hedge this crop and what are the advantages and disadvantages of doing so?

Accepted Answer

As a wheat farmer with a crop that will

Question 5

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 6

The duration of a 3-month Treasury futures contract is 3.46 years.What is the duration of the underlying Treasury note?

Accepted Answer

A) 2.98 years 
B) 3.11 years 
C) 3.21 years 
D) 3.36 years 
E) 3.48 years 
A) 2.98 years 
B) 3.11 years 
C) 3.21 years 
D) 3.36 years 
E) 3.48 years

Question 7

A long hedge is the addition of which one of the following to a short position in the underlying asset?

Accepted Answer

A) short spot position 
B) any spot position 
C) any futures position 
D) long futures position 
E) either a short spot or short futures position 
A) short spot position 
B) any spot position 
C) any futures position 
D) long futures position 
E) either a short spot or short futures position

Question 8

Which of the following are needed to determine the number of stock index futures required to cross-hedge a stock portfolio?
I.standard deviation of the stock portfolio
II.beta of the stock portfolio
III.value of the index futures contract
IV.value of the stock portfolio

Accepted Answer

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

Question 9

Which one of the following statements related to futures contracts is correct?

Accepted Answer

A) The buyer of the contract has a short position. 
B) The buyer of the contract has the right to either accept delivery or cancel the contract. 
C) Futures contracts can be cancelled by either the buyer or the seller with 10 days notice to the other party. 
D) Both the buyer and the seller of the contract are obligated to fulfill their duties as outlined in the futures contract. 
E) The buyer of the contract must deliver the underlying asset on the settlement date. 
A) The buyer of the contract has a short position. 
B) The buyer of the contract has the right to either accept delivery or cancel the contract. 
C) Futures contracts can be cancelled by either the buyer or the seller with 10 days notice to the other party. 
D) Both the buyer and the seller of the contract are obligated to fulfill their duties as outlined in the futures contract. 
E) The buyer of the contract must deliver the underlying asset on the settlement date.

Question 10

What is the difference between this day's high and closing prices for one 10-year Treasury note futures contract?
Treasury note,$100,000,pts and one-half of 1/32 of a point

Accepted Answer

A) -$435.00 
B) -$550.00 
C) -$800.00 
D) -$971.88 
E) -$1,093.75 
A) -$435.00 
B) -$550.00 
C) -$800.00 
D) -$971.88 
E) -$1,093.75

Question 11

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 12

Julie purchased four (4)S&P 500 index futures at a price of 1392.The contract size is $250 times the index value.The futures are maturing today at a price of 1387.50.What is the amount of her profit or loss?

Accepted Answer

A) -$3,125 
B) -$4,500 
C) -$5,625 
D) -$13,575 
E) -$15,625 
A) -$3,125 
B) -$4,500 
C) -$5,625 
D) -$13,575 
E) -$15,625

Question 13

You can withdraw funds from your margin account without closing your futures contract given which two of the following?
I.marking-to-market deducts funds from your margin account
II.marking-to-market adds funds to your margin account
III.margin balance after the withdrawal will exceed the maintenance margin requirement
IV.margin balance after the withdrawal will exceed the initial margin requirement

Accepted Answer

A) I and III only 
B) I and IV only 
C) II and III only 
D) II and IV only 
E) Funds cannot be withdrawn as long as the futures contract is outstanding. 
A) I and III only 
B) I and IV only 
C) II and III only 
D) II and IV only 
E) Funds cannot be withdrawn as long as the futures contract is outstanding.

Question 14

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 15

You own a diversified investment portfolio and wish to hedge it against market declines.Which one of the following would be best suited as a cross-hedge for this purpose?

Accepted Answer

A) going long on Treasury bonds in the spot market 
B) going long on DJIA futures 
C) going short on S&P 500 index futures 
D) going long on an index fund 
E) going short on Eurodollar futures 
A) going long on Treasury bonds in the spot market 
B) going long on DJIA futures 
C) going short on S&P 500 index futures 
D) going long on an index fund 
E) going short on Eurodollar futures

Question 16

Southern Fuel has an inventory of 756,000 gallons of heating oil.The futures contracts on heating oil are based on 42,000 gallons.If the firm wishes to fully hedge its inventory,it should take which one of the following positions in heating oil futures contracts?

Accepted Answer

A) long on 16 
B) long on 17 
C) short on 18 
D) short on 19 
E) short on 20 
A) long on 16 
B) long on 17 
C) short on 18 
D) short on 19 
E) short on 20

Question 17

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

When the seller of a futures contract is granted a choice among various assets to deliver,the seller is said to have which one of the following options?

The spot price for a non-dividend-paying stock is $24.The risk-free rate is 2.8 percent and the market rate is 10.6 percent.What is the 6-month futures price of this stock if spot-futures parity exists?

A financial instrument on which a futures contract is based is called which one of the following?

You are a wheat farmer with a crop that will be ready to harvest in approximately three months.How can you hedge this crop and what are the advantages and disadvantages of doing so?

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

The duration of a 3-month Treasury futures contract is 3.46 years.What is the duration of the underlying Treasury note?

A long hedge is the addition of which one of the following to a short position in the underlying asset?

Which of the following are needed to determine the number of stock index futures required to cross-hedge a stock portfolio? I.standard deviation of the stock portfolio II.beta of the stock portfolio III.value of the index futures contract IV.value of the stock portfolio

Which one of the following statements related to futures contracts is correct?

What is the difference between this day's high and closing prices for one 10-year Treasury note futures contract? Treasury note,$100,000,pts and one-half of 1/32 of a point

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

Julie purchased four (4)S&P 500 index futures at a price of 1392.The contract size is $250 times the index value.The futures are maturing today at a price of 1387.50.What is the amount of her profit or loss?

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

You own a diversified investment portfolio and wish to hedge it against market declines.Which one of the following would be best suited as a cross-hedge for this purpose?

Southern Fuel has an inventory of 756,000 gallons of heating oil.The futures contracts on heating oil are based on 42,000 gallons.If the firm wishes to fully hedge its inventory,it should take which one of the following positions in heating oil futures contracts?

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

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

When the seller of a futures contract is granted a choice among various assets to deliver,the seller is said to have which one of the following options?

The spot price for a non-dividend-paying stock is $24.The risk-free rate is 2.8 percent and the market rate is 10.6 percent.What is the 6-month futures price of this stock if spot-futures parity exists?

A financial instrument on which a futures contract is based is called which one of the following?

You are a wheat farmer with a crop that will be ready to harvest in approximately three months.How can you hedge this crop and what are the advantages and disadvantages of doing so?

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

The duration of a 3-month Treasury futures contract is 3.46 years.What is the duration of the underlying Treasury note?

A long hedge is the addition of which one of the following to a short position in the underlying asset?

Which of the following are needed to determine the number of stock index futures required to cross-hedge a stock portfolio? I.standard deviation of the stock portfolio II.beta of the stock portfolio III.value of the index futures contract IV.value of the stock portfolio

Which one of the following statements related to futures contracts is correct?

What is the difference between this day's high and closing prices for one 10-year Treasury note futures contract? Treasury note,$100,000,pts and one-half of 1/32 of a point

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

Julie purchased four (4)S&P 500 index futures at a price of 1392.The contract size is $250 times the index value.The futures are maturing today at a price of 1387.50.What is the amount of her profit or loss?

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

You own a diversified investment portfolio and wish to hedge it against market declines.Which one of the following would be best suited as a cross-hedge for this purpose?

Southern Fuel has an inventory of 756,000 gallons of heating oil.The futures contracts on heating oil are based on 42,000 gallons.If the firm wishes to fully hedge its inventory,it should take which one of the following positions in heating oil futures contracts?

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

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