Final_Fall_2005 - Econ435 Financial Markets and the...

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Econ435 – Financial Markets and the Macroeconomy Fall 2005 Final Exam The exam consists of 60 multiple choice questions and one essay question. Please answer ALL of them. The duration of the exam is 2 hrs. DO NOT OPEN the exams until you are told to do so and STOP writing when you are told that the exam is over. Failure to comply will result in a 10% loss in the grade. Do not forget to write your name and university ID number, as well as the color of your exam, on the scantron. NO PROGRAMMABLE OR FINANCIAL CALCULATORS ARE ALLOWED. Only simple or scientific calculators can be used. GOOD LUCK!
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1. The ____________ refers to the potential conflict between management and shareholders due to management's control of pecuniary rewards as well as the possibility of incompetent performance by managers. A) principal-agent problem B) diversification problem C) liquidity problem D) solvency problem E) regulatory problem 2. Which of the following is true of the Dow Jones Industrial Average? A) It is a value-weighted average of 30 large industrial stocks. B) It is a price-weighted average of 30 large industrial stocks. C) The divisor must be adjusted for stock splits. D) A and C. E) B and C. 3. Suppose the price of a share of IBM stock is $100. An April call option on IBM stock has a premium of $5 and an exercise price of $100. Ignoring commissions, the holder of the call option will earn a (positive) profit if the price of the share A) increases to $104. B) decreases to $90. C) increases to $105. D) decreases to $96. E) none of the above. 4. Before expiration, the time value of an in the money stock option is always A) equal to zero. B) positive. C) negative. D) equal to the stock price minus the exercise price. E) none of the above. 5. With regard to a call option contract on a stock, the short position is held by A) the trader who bought the contract at the largest discount. B) the trader who has to travel the farthest distance to deliver the stock. C) the trader who plans to hold the contract for the lengthiest time period. D) the trader who has the right to purchase the stock on the delivery date. E) the trader who commits to selling the stock on the delivery date. 6. A put option on a stock is said to be out of the money if A) the exercise price is higher than the stock price. B) the exercise price is less than the stock price. C) the exercise price is equal to the stock price. D) the price of the put is higher than the price of the call. E) the price of the call is higher than the price of the put. Page 1
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7. Other things equal, the price of a stock call option is positively correlated with the following factors except A) the stock price. B) the time to expiration. C) the stock volatility.
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This note was uploaded on 02/22/2009 for the course ECONOMICS 4313 taught by Professor Tsui during the Spring '09 term at HKU.

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Final_Fall_2005 - Econ435 Financial Markets and the...

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