Exam 18: Derivatives and Risk Management

The two basic types of hedges involving the futures market are long hedges and short hedges,where the words "long" and "short" refer to the maturity of the hedging instrument.For example,a long hedge might use Treasury bonds,while a short hedge might use 3-month T-bills.

A 6-month call option on Meyers Inc.'s stock has a strike price of $45 and sells in the market for $8.25.Meyers' current stock price is $48.What is the option premium?

There are call options on the common stock of XYZ Corporation.Which of the following best describes the factors that affect call option values?

A 6-month call option on Romer Technologies' stock has a strike price of $45 and sells in the market for $8.25.Romer's current stock price is $48.What is the exercise value of the option?

An investor who "writes" a call option without the stock in his or her portfolio to back it up is selling a(n)

Interest rate swaps allow a firm to exchange fixed for floating-rate payments,but a swap cannot reduce actual net interest expenses.

Speculative risks are symmetrical in the sense that they offer the chance of a gain as well as a loss,while pure risks are those that can only lead to losses.

Suppose a CBOT 10-year U.S.Treasury note futures contract has a quoted price of 103-18.If annual interest rates go up by 1.00 percentage point,what is the gain or loss on the futures contract? (Assume a $1,000 par value,round the new interest rate to 4 decimal places when written as a decimal,and round the change in price up to the nearest whole dollar.)

A call option whose underlying stock value is less than the corresponding exercise price is an example of a(n)

Which of the following is NOT a way risk management can be used to increase the value of a firm?

An investor who "writes" a call option against stock held in his or her portfolio is selling a(n)

An option that gives the holder the right to sell a stock at a specified price at some time in the future is called a(n)

Deeble Construction Co.'s stock is trading at $30 a share.There are also call options on the company's stock,some with an exercise price of $25 and some with an exercise price of $35.All options expire in 3 months.Which of the following best describes the value of these options?

Which of the following is NOT an example of a derivative security?

Suppose a CBOT 10-year U.S.Treasury note futures contract has a quoted price of 89-09.What is the implied annual interest rate inherent in this futures contract?

Which of the following statements is most CORRECT?

A swap is a method used to reduce financial risk.Which of the following statements about swaps,if any,is NOT CORRECT?

The value of a stock option depends on all of the following EXCEPT:

Which of the following events is likely to decrease the value of call options on the common stock of GCC Company?

Suppose a CBOT 10-year U.S.Treasury note futures contract has a quoted price of 88-30.If annual interest rates go down by 1.00 percentage point,what is the gain or loss on the futures contract? (Assume a $1,000 par value,round the new interest rate to 4 decimal places when written as a decimal,and round the change in price up to the nearest whole dollar.)