Question 1

Forward contracts benefit only the customer due to a reduction in uncertainty.

Accepted Answer

A) True 
 B)False

Question 2

Financial futures include:

Accepted Answer

A) Treasury bond futures,which are the most popular of all futures contracts in terms of contracts issued. 
B) interest rate futures,which have been around the longest. 
C) stock index futures,which allow for either a cash settlement or a stock settlement. 
D) all of the above. 
A) Treasury bond futures,which are the most popular of all futures contracts in terms of contracts issued. 
B) interest rate futures,which have been around the longest. 
C) stock index futures,which allow for either a cash settlement or a stock settlement. 
D) all of the above.

Question 3

Self insurance is the practice of:

Accepted Answer

A) holding reserves within the firm to cover potential losses. 
B) CEO's holding large life insurance policies on themselves,payable to the company. 
C) companies in unrelated businesses forming subsidiaries to cover their insurance needs. 
D) purchasing insurance policies directly rather than through a broker. 
A) holding reserves within the firm to cover potential losses. 
B) CEO's holding large life insurance policies on themselves,payable to the company. 
C) companies in unrelated businesses forming subsidiaries to cover their insurance needs. 
D) purchasing insurance policies directly rather than through a broker.

Question 4

An American option can be exercised only on the expiration date.

Accepted Answer

A) True 
 B)False

Question 5

The term futures margin refers to:

Accepted Answer

A) the percent of potential margin for profit associated with a futures contract. 
B) the "good faith" money the purchaser puts down to ensure that the contract will be carried out. 
C) the interest-earning account associated with a futures contract. 
D) the number of contracts outstanding on a particular futures contract. 
A) the percent of potential margin for profit associated with a futures contract. 
B) the "good faith" money the purchaser puts down to ensure that the contract will be carried out. 
C) the interest-earning account associated with a futures contract. 
D) the number of contracts outstanding on a particular futures contract.

Question 6

European and American are different types of stock options and have nothing to do with where the options are bought and sold.

Accepted Answer

A) True 
 B)False

Question 7

What are some of the means by which firms can transfer risk to other parties? Should firms always transfer risks when it is possible to do so?

Accepted Answer

Firms can purchase insurance policies wh

Question 8

Foreign-exchange risk can be important even for firms that have only U.S.operations.

Accepted Answer

A) True 
 B)False

Question 9

When a party enters into a swap contract it agrees to:

Accepted Answer

A) accept one set of payments in exchange for another. 
B) exchange principals on loans with different interest rates. 
C) exchange a loan for a different loan with a different time to maturity. 
D) swap a debt obligation for an equity obligation. 
A) accept one set of payments in exchange for another. 
B) exchange principals on loans with different interest rates. 
C) exchange a loan for a different loan with a different time to maturity. 
D) swap a debt obligation for an equity obligation.

Question 10

What are the rights and obligations of the buyer and the seller of a call option on common stock?

Accepted Answer

The buyer of a call option has the right

Question 11

The purpose of a hedging strategy is to:

Accepted Answer

A) avoid speculation on future prices. 
B) speculate that future prices will be lower than the spot price. 
C) speculate that future prices will be higher than the spot price. 
D) avoid exposure to commodity rate risk. 
A) avoid speculation on future prices. 
B) speculate that future prices will be lower than the spot price. 
C) speculate that future prices will be higher than the spot price. 
D) avoid exposure to commodity rate risk.

Question 12

The striking price is the:

Accepted Answer

A) price paid for the option. 
B) price at which the stock or asset may be purchased from the writer. 
C) minimum value of the option. 
D) premium minus the exercise price. 
A) price paid for the option. 
B) price at which the stock or asset may be purchased from the writer. 
C) minimum value of the option. 
D) premium minus the exercise price.

Question 13

Assume that the current price of FGX stock is $35,that a 6 month call option on the stock has a strike or exercise price of $33.00,the risk free rate is 4%,and that you have calculated N(d1)as .65 and N(d2)as .55.Use the Black-Scholes model to calculate the price of the option.

Accepted Answer

$35(.65)-

Question 14

As the risk free rate of return increases,the value of call options ________ and the value of put options ________.

Accepted Answer

A) decreases,increases 
B) increases,increases 
C) decreases,decreases 
D) increases,decreases 
A) decreases,increases 
B) increases,increases 
C) decreases,decreases 
D) increases,decreases

Question 15

Which of the following should determine whether or not the firm should purchase insurance from an outside party?

Accepted Answer

A) Only the frequency of incidents 
B) The cost of the policy and the expected losses 
C) Only the maximum size of incidents 
D) Only the firms normal cash reserves 
A) Only the frequency of incidents 
B) The cost of the policy and the expected losses 
C) Only the maximum size of incidents 
D) Only the firms normal cash reserves

Question 16

If a call option's exercise price is above the stock price,then the option's intrinsic value is zero.

Accepted Answer

A) True 
 B)False

Question 17

The difference between a stock's current price and the striking price of the option is the minimum value of the option.

Accepted Answer

A) True 
 B)False

Question 18

(Business of Life)What guidelines should determine whether or not an individual should buy life insurance?

Accepted Answer

The real question is "Who needs to be pr

Question 19

Futures contracts:

Accepted Answer

A) can be used by financial managers to reduce risk. 
B) provide their holder with an opportunity to buy or sell an asset at some future time if the asset's value has changed in a manner favorable to the futures contract holder. 
C) sustain a small change in value when there is a small change in the price of the underlying commodity. 
D) have all of the characteristics stated above. 
A) can be used by financial managers to reduce risk. 
B) provide their holder with an opportunity to buy or sell an asset at some future time if the asset's value has changed in a manner favorable to the futures contract holder. 
C) sustain a small change in value when there is a small change in the price of the underlying commodity. 
D) have all of the characteristics stated above.

Question 20

A purchaser of commodities who is completely hedged with forward contracts will profit if prices fall before the purchase is concluded.

Accepted Answer

A) True 
 B)False

Forward contracts benefit only the customer due to a reduction in uncertainty.

Financial futures include:

Self insurance is the practice of:

An American option can be exercised only on the expiration date.

The term futures margin refers to:

European and American are different types of stock options and have nothing to do with where the options are bought and sold.

What are some of the means by which firms can transfer risk to other parties? Should firms always transfer risks when it is possible to do so?

Foreign-exchange risk can be important even for firms that have only U.S.operations.

When a party enters into a swap contract it agrees to:

What are the rights and obligations of the buyer and the seller of a call option on common stock?

The purpose of a hedging strategy is to:

The striking price is the:

Assume that the current price of FGX stock is $35,that a 6 month call option on the stock has a strike or exercise price of $33.00,the risk free rate is 4%,and that you have calculated N(d₁)as .65 and N(d2)as .55.Use the Black-Scholes model to calculate the price of the option.

As the risk free rate of return increases,the value of call options and the value of put options .

Which of the following should determine whether or not the firm should purchase insurance from an outside party?

If a call option's exercise price is above the stock price,then the option's intrinsic value is zero.

The difference between a stock's current price and the striking price of the option is the minimum value of the option.

(Business of Life)What guidelines should determine whether or not an individual should buy life insurance?

Futures contracts:

A purchaser of commodities who is completely hedged with forward contracts will profit if prices fall before the purchase is concluded.

Getting Started-Principles of Finance

Firms and the Financial Market

Understanding Financial Statements, taxes, and Cash Flows

Financial Analysis-Sizing up Firm Performance

Time Value of Money-The Basics

The Time Value of Money-Annuities and Other Topics

An Introduction to Risk and Return-History of Financial Market Returns

Risk and Return-Capital Market Theory

Debt Valuation and Interest Rates

Stock Valuation

Investment Decision Criteria

Analyzing Project Cash Flows

Risk Analysis and Project Evaluation

The Cost of Capital

Capital Structure Policy

Dividend Policy

Financial Forecasting and Planning

Working Capital Management

International Business Finance

Filters

Exam 20: Corporate Risk Management

Forward contracts benefit only the customer due to a reduction in uncertainty.

Financial futures include:

Self insurance is the practice of:

An American option can be exercised only on the expiration date.

The term futures margin refers to:

European and American are different types of stock options and have nothing to do with where the options are bought and sold.

What are some of the means by which firms can transfer risk to other parties? Should firms always transfer risks when it is possible to do so?

Foreign-exchange risk can be important even for firms that have only U.S.operations.

When a party enters into a swap contract it agrees to:

What are the rights and obligations of the buyer and the seller of a call option on common stock?

The purpose of a hedging strategy is to:

The striking price is the:

Assume that the current price of FGX stock is $35,that a 6 month call option on the stock has a strike or exercise price of $33.00,the risk free rate is 4%,and that you have calculated N(d1)as .65 and N(d2)as .55.Use the Black-Scholes model to calculate the price of the option.

As the risk free rate of return increases,the value of call options ________ and the value of put options ________.

Which of the following should determine whether or not the firm should purchase insurance from an outside party?

If a call option's exercise price is above the stock price,then the option's intrinsic value is zero.

The difference between a stock's current price and the striking price of the option is the minimum value of the option.

(Business of Life)What guidelines should determine whether or not an individual should buy life insurance?

Futures contracts:

A purchaser of commodities who is completely hedged with forward contracts will profit if prices fall before the purchase is concluded.

Getting Started-Principles of Finance

Firms and the Financial Market

Understanding Financial Statements, taxes, and Cash Flows

Financial Analysis-Sizing up Firm Performance

Time Value of Money-The Basics

The Time Value of Money-Annuities and Other Topics

An Introduction to Risk and Return-History of Financial Market Returns

Risk and Return-Capital Market Theory

Debt Valuation and Interest Rates

Stock Valuation

Investment Decision Criteria

Analyzing Project Cash Flows

Risk Analysis and Project Evaluation

The Cost of Capital

Capital Structure Policy

Dividend Policy

Financial Forecasting and Planning

Working Capital Management

International Business Finance

Filters

Assume that the current price of FGX stock is $35,that a 6 month call option on the stock has a strike or exercise price of $33.00,the risk free rate is 4%,and that you have calculated N(d₁)as .65 and N(d2)as .55.Use the Black-Scholes model to calculate the price of the option.

As the risk free rate of return increases,the value of call options and the value of put options .