Exhibit 13-3 USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) On the last day of October, Bruce Springsteen is considering the purchase of 100 shares of Olivia Corporation common stock selling at $37 1/2 per share and also considering an Olivia option. $\begin{array}{lllll} &\quad\quad\quad\text { Calls } && \quad\quad\quad\quad\text { Puts }\\ \hline\text { Price } & \text { December } & \text { March } & \text { December } & \text { March } \\ \hline 35 & 33 / 4 & 5 & 11 / 4 & 2 \\ 40 & 21 / 2 & 31 / 2 & 41 / 2 & 43 / 4 \end{array}$ -Refer to Exhibit 13-3. If Bruce decides to buy a March call option with an exercise price of 35, what is his dollar gain (loss) if he closes his position when the stock is selling at 43 1/2?

A) $225.00 loss B) $350.00 loss C) $225.00 gain D) $350.00 gain E) $850.00 gain A) $225.00 loss B) $350.00 loss C) $225.00 gain D) $350.00 gain E) $850.00 gain

Exhibit 13-8 USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) $\begin{array}{c} \quad\quad\quad\quad\text { XYZ CORP }\\ \begin{array}{cccc} \hline &{ \quad\quad\quad\text { EXERCISE } } & & { \quad\quad\quad\text { NYSE } } \\ \hline&\text { DATE } & \text { PRICE } & \text { PRICE } & \text { CLOSE } \\ \hline \text {CALLS } & \text { OCT } & 85 & 163 / 4 & 10111 / 16 \\ &\text { OCT } & 90 & 12 & 10111 / 16 \\ &\text { OCT } & 95 & 75 / 8 & 10111 / 16 \\ \text { PUTS } &\text { OCT } & 85 & 1 / 8 & 10111 / 16 \\ &\text { OCT } & 90 & 3 / 8 & 10111 / 16 \\ &\text { OCT } & 95 & 13 / 16 & 10111 / 16 \end{array}\end{array}$ -Refer to Exhibit 13-8. If you establish a long straddle using the options with an 90 exercise price, what is your dollar gain or loss if at expiration XYZ is still trading at 101 11/16?

A) $68.75 loss B) $68.75 gain C) $37.50 loss D) $1,200.00 loss E) $1,200.00 gain A) $68.75 loss B) $68.75 gain C) $37.50 loss D) $1,200.00 loss E) $1,200.00 gain

Exhibit 13-9 USE THE FOLLOWING INFORMATION FOR THE NEXT QUESTION(S) Consider the following information on put and call options for Bank of Montreal $\begin{array}{ccc} \text { Strike Price } & \text { Put Price } & \text { Call Price } \\ \hline \$ 32.50 & \$ 2.85 & \$ 1.65 \end{array}$ -Refer to Exhibit 13-9. A short straddle is an appropriate strategy if

A) An investor wishes to generate additional income. B) An investor wished to insure against a decline in share values. C) An investor expected share prices to be volatile. D) An investor expected share prices to remain in a trading range. E) An investor expected share prices to be volatile, but was inclined to be bullish. A) An investor wishes to generate additional income. B) An investor wished to insure against a decline in share values. C) An investor expected share prices to be volatile. D) An investor expected share prices to remain in a trading range. E) An investor expected share prices to be volatile, but was inclined to be bullish.

Exhibit 13-8 USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) $\begin{array}{c} \quad\quad\quad\quad\text { XYZ CORP }\\ \begin{array}{cccc} \hline &{ \quad\quad\quad\text { EXERCISE } } & & { \quad\quad\quad\text { NYSE } } \\ \hline&\text { DATE } & \text { PRICE } & \text { PRICE } & \text { CLOSE } \\ \hline \text {CALLS } & \text { OCT } & 85 & 163 / 4 & 10111 / 16 \\ &\text { OCT } & 90 & 12 & 10111 / 16 \\ &\text { OCT } & 95 & 75 / 8 & 10111 / 16 \\ \text { PUTS } &\text { OCT } & 85 & 1 / 8 & 10111 / 16 \\ &\text { OCT } & 90 & 3 / 8 & 10111 / 16 \\ &\text { OCT } & 95 & 13 / 16 & 10111 / 16 \end{array}\end{array}$ -Refer to Exhibit 13-8. If you establish a long strip using the options with an 85 exercise price, what is your dollar gain or loss if at expiration XYZ is still trading at 101 11/16?

A) $1,668.75 gain B) $1,700.00 gain C) $1,700.00 loss D) $31.25 gain E) $31.25 loss A) $1,668.75 gain B) $1,700.00 gain C) $1,700.00 loss D) $31.25 gain E) $31.25 loss

Exhibit 13-9 USE THE FOLLOWING INFORMATION FOR THE NEXT QUESTION(S) Consider the following information on put and call options for Bank of Montreal $\begin{array}{ccc} \text { Strike Price } & \text { Put Price } & \text { Call Price } \\ \hline \$ 32.50 & \$ 2.85 & \$ 1.65 \end{array}$ -Refer to Exhibit 13-9. Calculate the payoffs of a long strap at a stock price at expiration of $20 and a stock price at expiration of $45.

A) $6.35, $18.85 B) $29.65, $42.15 C) $21.65, $34.15 D) $8, $8 E) -$8, -$8 A) $6.35, $18.85 B) $29.65, $42.15 C) $21.65, $34.15 D) $8, $8 E) -$8, -$8

Exam 13: An Introduction to Derivative Markets and Securities

Exhibit 13-1 USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) December futures on the S&P 500 stock index trade at 250 times the index value of 1187.70. Your broker requires an initial margin of 10% on futures contracts. The current value of the S&P 500 stock index is 1178. -Refer to Exhibit 13-1. Suppose at expiration the futures contract price is 250 times the index value of 1170. Disregarding transaction costs, what is your percentage return?

Free

(Multiple Choice)

4.8/5

(85)

Question 1

Correct Answer:

Verified

C

An option buyer must exercise the option on or before the expiration date.

Free

(True/False)

4.8/5

(72)

Question 2

Correct Answer:

Verified

False

A call option in which the stock price is higher than the exercise price is said to be

Free

(Multiple Choice)

4.9/5

(77)

Question 3

Correct Answer:

Verified

B

Exhibit 13-10 USE THE FOLLOWING INFORMATION TO ANSWER THE NEXT QUESTION(S) GE Corporation has a put option selling for $2.90 and a call option selling for $1.95, both with a strike price of $29.00. -Refer to Exhibit 13-10. What would the net value of a covered call position be if the stock price at expiration is $35?

(Multiple Choice)

4.8/5

(86)

Question 4

Consider a stock that is currently trading at $65. Calculate the intrinsic value for a put option that has an exercise price of $55.

(Multiple Choice)

4.9/5

(69)

Question 5

Exhibit 13-3 USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) On the last day of October, Bruce Springsteen is considering the purchase of 100 shares of Olivia Corporation common stock selling at $37 1/2 per share and also considering an Olivia option. Calls Puts Price December March December March 35 33/4 5 11/4 2 40 21/2 31/2 41/2 43/4 -Refer to Exhibit 13-3. If Bruce decides to buy a March call option with an exercise price of 35, what is his dollar gain (loss) if he closes his position when the stock is selling at 43 1/2?

(Multiple Choice)

4.9/5

(81)

Question 6

A money spread involves buying and selling call options in the same stock with

(Multiple Choice)

4.7/5

(75)

Question 7

A cash or spot contract is an agreement for the immediate delivery of an asset such as the purchase of stock on the TSX.

(True/False)

5.0/5

(80)

Question 8

A strip is a call option on a stock that is written by someone that owns the stock.

(True/False)

4.9/5

(76)

Question 9

In the forward market both parties are required to post collateral or margin.

(True/False)

4.9/5

(91)

Question 10

Exhibit 13-8 USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) XYZ CORP EXERCISE NYSE DATE PRICE PRICE CLOSE CALLS OCT 85 163/4 10111/16 OCT 90 12 10111/16 OCT 95 75/8 10111/16 PUTS OCT 85 1/8 10111/16 OCT 90 3/8 10111/16 OCT 95 13/16 10111/16 -Refer to Exhibit 13-8. If you establish a long straddle using the options with an 90 exercise price, what is your dollar gain or loss if at expiration XYZ is still trading at 101 11/16?

(Multiple Choice)

4.8/5

(81)

Question 11

Exhibit 13-9 USE THE FOLLOWING INFORMATION FOR THE NEXT QUESTION(S) Consider the following information on put and call options for Bank of Montreal Strike Price Put Price Call Price \ 32.50 \ 2.85 \ 1.65 -Refer to Exhibit 13-9. A short straddle is an appropriate strategy if

(Multiple Choice)

4.9/5

(90)

Question 12

Assume that you have just sold a stock for a loss at a price of $75, for tax purposes. You still wish to maintain exposure to the sold stock. Suppose that you buy a call with a strike price of $70 and a price of $6.75. Calculate the effective price paid to repurchase the stock if the price after 35 days is $65.

(Multiple Choice)

4.8/5

(99)

Question 13

A futures contract is an agreement between a trader and the clearinghouse of the exchange for delivery of an asset in the future.

(True/False)

4.8/5

(71)

Question 14

A call option differs from a put option in that

(Multiple Choice)

4.9/5

(71)

Question 15

Exhibit 13-8 USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) XYZ CORP EXERCISE NYSE DATE PRICE PRICE CLOSE CALLS OCT 85 163/4 10111/16 OCT 90 12 10111/16 OCT 95 75/8 10111/16 PUTS OCT 85 1/8 10111/16 OCT 90 3/8 10111/16 OCT 95 13/16 10111/16 -Refer to Exhibit 13-8. If you establish a long strip using the options with an 85 exercise price, what is your dollar gain or loss if at expiration XYZ is still trading at 101 11/16?

(Multiple Choice)

4.9/5

(85)

Question 16

Exhibit 13-9 USE THE FOLLOWING INFORMATION FOR THE NEXT QUESTION(S) Consider the following information on put and call options for Bank of Montreal Strike Price Put Price Call Price \ 32.50 \ 2.85 \ 1.65 -Refer to Exhibit 13-9. Calculate the payoffs of a long strap at a stock price at expiration of $20 and a stock price at expiration of $45.

(Multiple Choice)

4.9/5

(94)

Question 17

Tom Gettback buys 100 shares of Johnson Walker stock for $87.00 per share and a 3-month Johnson Walker put option with an exercise price of $105.00 for $20.00. What is his dollar gain if at expiration the stock is selling for $80.00 per share?

(Multiple Choice)

4.7/5

(83)

Question 18

If an investor wants to acquire the right to buy or sell an asset, but not the obligation to do it, the best instrument is an option rather than a futures contract.

(True/False)

4.9/5

(67)

Question 19

Exhibit 13-4 USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) Rick Thompson is considering the following alternatives for investing in Davis Industries, which is now selling for $44 per share: 1) Buy 500 shares, and 2) Buy six month call options with an exercise price of 45 for $\$ 3.25$ premium. -Refer to Exhibit 13-4. Assuming no commissions or taxes, what is the annualized percentage gain if the stock reaches $50 in four months and a call was purchased?

(Multiple Choice)

4.8/5

(91)

Question 20

An option buyer must exercise the option on or before the expiration date.

A call option in which the stock price is higher than the exercise price is said to be

Consider a stock that is currently trading at $65. Calculate the intrinsic value for a put option that has an exercise price of $55.

A money spread involves buying and selling call options in the same stock with

A cash or spot contract is an agreement for the immediate delivery of an asset such as the purchase of stock on the TSX.

A strip is a call option on a stock that is written by someone that owns the stock.

In the forward market both parties are required to post collateral or margin.

Exhibit 13-9 USE THE FOLLOWING INFORMATION FOR THE NEXT QUESTION(S) Consider the following information on put and call options for Bank of Montreal Strike Price Put Price Call Price \ 32.50 \ 2.85 \ 1.65 -Refer to Exhibit 13-9. A short straddle is an appropriate strategy if

A futures contract is an agreement between a trader and the clearinghouse of the exchange for delivery of an asset in the future.

A call option differs from a put option in that

Tom Gettback buys 100 shares of Johnson Walker stock for $87.00 per share and a 3-month Johnson Walker put option with an exercise price of $105.00 for $20.00. What is his dollar gain if at expiration the stock is selling for $80.00 per share?

If an investor wants to acquire the right to buy or sell an asset, but not the obligation to do it, the best instrument is an option rather than a futures contract.

The Investment Setting

The Asset Allocation Decision

Selecting Investments in a Global Market

Securities Markets and the Economy

Efficient Capital Markets

An Introduction to Portfolio Management

Asset Pricing Models: Capm and Apt

Economic and Industry Analysis

Company Analysis and Stock Valuation

Technical Analysis

Bond Fundamentals

The Analysis and Valuation of Bonds

Derivatives: Analysis and Valuation

Equity Portfolio Management Strategies

Bond Portfolio Management Strategies

Professional Money Management, Alternative Assets, and Industry Ethics

Evaluation of Portfolio Performance

Analysis of Financial Statements

An Introduction to Security Valuation

Web Appendix: A Review of Statistics and the Security Market Line

Web Appendix: A Review of Statistics and the Security Market Line

Appendix: Objectives and Constraints of Institutional Investors

Filters