FINAL - Name_Answer Key_ Final Exam A. Gubin FIN 4504...

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A. Gubin Final Exam, FIN 4504 1 Name___Answer Key__________________________ Final Exam A. Gubin FIN 4504 Summer 2008 Instructions : The total time for this test is 2 ½ hours. Questions 1-10 are worth 2 points each, questions 11-12 are worth 5 points each; questions 13-16 are worth 5 points each, and questions 17-21 are worth 10 points each. Partial credit will be given where appropriate for questions 13-21. Multiple Choice . Please circle the best/most correct response. 1. The difference between an option's intrinsic value and its market value is usually the largest when __________ . a. the option is deep in the money b. the hedge ratio is very close to one c. the current stock price is close to the exercise price d. the call's elasticity is very large e. time to maturity is close to zero 2. If a put option sold for more than its equilibrium value, investors would __________ to lock in an arbitrage profit. a. sell the put short b. buy the stock and sell the put short c. sell the stock short, sell the put short, buy a call, and invest in risk-free bonds d. buy the stock, buy the put, sell a call, and sell short risk-free bonds e. sell short risk-free bonds and buy the put f. buy the stock, sell the put, and invest in risk-free bonds 3. With no other positions, you have sold short 100 shares of Amazon.com stock at $40 per share and have sold 1 October 40 put option on Amazon.com with a premium of $5. At what price of the stock will you break even (i.e., at what terminal stock price will profit be equal to zero)? a. $30 b. $35 c. $40 d. $45 e. $50 4. If an investor wishes to invest 100% of her portfolio in safe assets but does not wish to manage her portfolio, she should invest in __________ . a. a fund of funds b. a growth stock fund c. a money market fund d. an income fund e. a precious metal fund f. several different money market instruments
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A. Gubin Final Exam, FIN 4504 2 5. Which of the following is not a concern or question that you should ask when interpreting asset pricing anomalies? a. data mining/data snooping b. Are all investors rational mean-variance optimizers? c. Is the trading strategy implementable? d. survivorship bias e. Is the asset pricing model correct? 6. The market price of risk is given by __________ . a. the second derivative of the capital allocation line b. the first derivative of the capital allocation line c. the point at which the second derivative of the investor's indifference curve reaches zero d. the point at which the investor's indifference curve is tangent to the capital allocation line e. all of the above 7. _______________ is the only stock that has been in the DJIA since the inception of the index in 1896.
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FINAL - Name_Answer Key_ Final Exam A. Gubin FIN 4504...

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