Exhibit 13-7 USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) $\begin{array}{|l|l|l|c|} \hline \text { Option Type } & & \text { Currency } & {\text { Canadian dollar }} \\ \hline \begin{array}{l} \text { Contract } \\ \text { Size } \end{array} & & 50000 &{\text { Canadian dollars }} \\ \hline \text { Expiry } & & \text { April } & \mid\\ \hline & & &\mid \\ \hline \text { Strike } & \text { Call } & \text { Put } & \mid \\ \hline \$ 0.815 & \$ 0.0118 & &\mid \\ \hline \$ 0.820 & & \$ 0.0068 & \mid\\ \hline \end{array}$ -Refer to Exhibit 13-7. If the spot rate at expiration is $0.80 and the call option was purchased, what is the dollar gain or loss?

A) $123 gain B) $590 loss C) $312 gain D) $237 gain E) $0 A) $123 gain B) $590 loss C) $312 gain D) $237 gain E) $0

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 long 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 13-7 USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) $\begin{array}{|l|l|l|c|} \hline \text { Option Type } & & \text { Currency } & {\text { Canadian dollar }} \\ \hline \begin{array}{l} \text { Contract } \\ \text { Size } \end{array} & & 50000 &{\text { Canadian dollars }} \\ \hline \text { Expiry } & & \text { April } & \mid\\ \hline & & &\mid \\ \hline \text { Strike } & \text { Call } & \text { Put } & \mid \\ \hline \$ 0.815 & \$ 0.0118 & &\mid \\ \hline \$ 0.820 & & \$ 0.0068 & \mid\\ \hline \end{array}$ -Refer to Exhibit 13-7. If the spot rate at expiration is $0.85 and the put option was purchased, what is the dollar gain or loss?

A) $340 loss B) $125 gain C) $750 gain D) $750 loss E) $200 loss A) $340 loss B) $125 gain C) $750 gain D) $750 loss E) $200 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 net value of a covered call position 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

Exhibit 13-7 USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) $\begin{array}{|l|l|l|c|} \hline \text { Option Type } & & \text { Currency } & {\text { Canadian dollar }} \\ \hline \begin{array}{l} \text { Contract } \\ \text { Size } \end{array} & & 50000 &{\text { Canadian dollars }} \\ \hline \text { Expiry } & & \text { April } & \mid\\ \hline & & &\mid \\ \hline \text { Strike } & \text { Call } & \text { Put } & \mid \\ \hline \$ 0.815 & \$ 0.0118 & &\mid \\ \hline \$ 0.820 & & \$ 0.0068 & \mid\\ \hline \end{array}$ -Refer to Exhibit 13-7. How much must an investor pay for one call option contract?

A) $680 B) $815 C) $625 D) $590 E) $340 A) $680 B) $815 C) $625 D) $590 E) $340

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 strap 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) $37.50 loss B) $37.50 gain C) $100.00 loss D) $100.00 gain E) $2,437.50 loss A) $37.50 loss B) $37.50 gain C) $100.00 loss D) $100.00 gain E) $2,437.50 loss

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 buys a March put option with an exercise price of 40, what is his dollar gain (loss) if he closes his position when the stock is selling at 43 1/2?

A) $825.00 loss B) $475.00 loss C) $350.00 loss D) $25.00 loss E) He has a gain A) $825.00 loss B) $475.00 loss C) $350.00 loss D) $25.00 loss E) He has a gain

Exam 13: An Introduction to Derivative Markets and Securities

Exhibit 13-7 USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) Option Type Currency Canadian dollar Contract Size 50000 Canadian dollars Expiry April \mid \mid Strike Call Put \mid \ 0.815 \ 0.0118 \mid \ 0.820 \ 0.0068 \mid -Refer to Exhibit 13-7. If the spot rate at expiration is $0.80 and the call option was purchased, what is the dollar gain or loss?

(Multiple Choice)

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Question 21

Forward and future contracts, as well as options, are types of derivative securities.

(True/False)

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Question 22

Assume that you have purchased a call option with a strike price $60 for $5. At the same time you purchase a put option on the same stock with a strike price of $60 for $4. If the stock is currently selling for $75 per share, calculate the dollar return on this option strategy.

(Multiple Choice)

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Question 23

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 long straddle is an appropriate strategy if

(Multiple Choice)

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Question 24

In the two state option pricing model, which of the following does not influence the option price?

(Multiple Choice)

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Question 25

Exhibit 13-7 USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) Option Type Currency Canadian dollar Contract Size 50000 Canadian dollars Expiry April \mid \mid Strike Call Put \mid \ 0.815 \ 0.0118 \mid \ 0.820 \ 0.0068 \mid -Refer to Exhibit 13-7. If the spot rate at expiration is $0.85 and the put option was purchased, what is the dollar gain or loss?

(Multiple Choice)

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Question 26

You own a stock that has risen from $10 per share to $32 per share. You wish to delay taking the profit but you are troubled about the short run behavior of the stock market. An effective action on your part would be to

(Multiple Choice)

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Question 27

Futures contracts are slower to absorb new information than forward contracts.

(True/False)

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Question 28

Exhibit 13-2 USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) A futures contract on Treasury bond futures with a December expiration date currently trade at 103:06. The face value of a Treasury bond futures contract is $100,000. Your broker requires an initial margin of 10%. -Refer to Exhibit 13-2. Calculate the initial margin deposit.

(Multiple Choice)

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Question 29

A one year call option has a strike price of 60, expires in 6 months, and has a price of $2.5. If the risk free rate is 7%, and the current stock price is $55, what should the corresponding put be worth?

(Multiple Choice)

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Question 30

The cost of carry includes all of the following except

(Multiple Choice)

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Question 31

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 net value of a covered call position at a stock price at expiration of $20, and a stock price at expiration of $45.

(Multiple Choice)

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Question 32

Exhibit 13-7 USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) Option Type Currency Canadian dollar Contract Size 50000 Canadian dollars Expiry April \mid \mid Strike Call Put \mid \ 0.815 \ 0.0118 \mid \ 0.820 \ 0.0068 \mid -Refer to Exhibit 13-7. How much must an investor pay for one call option contract?

(Multiple Choice)

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Question 33

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 strap 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)

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Question 34

Which of the following is not a factor needed to calculate the value of an American call option?

(Multiple Choice)

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Question 35

In a money spread, an investor would

(Multiple Choice)

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Question 36

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 buys a March put option with an exercise price of 40, what is his dollar gain (loss) if he closes his position when the stock is selling at 43 1/2?

(Multiple Choice)

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Question 37

A stock currently trades for $115. January call options with a strike price of $100 sell for $16, and January put options a strike price of $100 sell for $5. Estimate the price of a risk free bond.

(Multiple Choice)

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Question 38

A forward contract gives its holder the option to conduct a transaction involving another security or commodity.

(True/False)

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Question 39

A long strip position indicates that an investor is bullish but conservative.

(True/False)

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Question 40

Forward and future contracts, as well as options, are types of derivative securities.

Assume that you have purchased a call option with a strike price $60 for $5. At the same time you purchase a put option on the same stock with a strike price of $60 for $4. If the stock is currently selling for $75 per share, calculate the dollar return on this option strategy.

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 long straddle is an appropriate strategy if

In the two state option pricing model, which of the following does not influence the option price?

You own a stock that has risen from $10 per share to $32 per share. You wish to delay taking the profit but you are troubled about the short run behavior of the stock market. An effective action on your part would be to

Futures contracts are slower to absorb new information than forward contracts.

A one year call option has a strike price of 60, expires in 6 months, and has a price of $2.5. If the risk free rate is 7%, and the current stock price is $55, what should the corresponding put be worth?

The cost of carry includes all of the following except

Which of the following is not a factor needed to calculate the value of an American call option?

In a money spread, an investor would

A stock currently trades for $115. January call options with a strike price of $100 sell for $16, and January put options a strike price of $100 sell for $5. Estimate the price of a risk free bond.

A forward contract gives its holder the option to conduct a transaction involving another security or commodity.

A long strip position indicates that an investor is bullish but conservative.

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

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