Chap023

# Chap023 - Chapter 23 Futures and Swaps A Closer Look...

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Chapter 23 Futures and Swaps: A Closer Look Multiple Choice Questions 1. Which one of the following stock index futures has a multiplier of 250? A) Russell 2000 B) S&P 500 Index C) Nikkei D) DAX-30 E) NASDAQ 100 Answer: B Difficulty: Easy Rationale: The multiplier is used to calculate contract settlements. See Table 23.1 on page 829. 2. You purchased one S&P 500 Index futures contract at a price of 950 and closed your position when the index futures was 947, you incurred: A) a loss of \$1,500. B) a gain of \$1,500. C) a loss of \$750. D) a gain of \$750. E) None of the above. Answer: C Difficulty: Moderate Rationale: (-\$950 + \$947) X 250 = - \$750. 3. You took a short position in two S&P 500 futures contracts at a price of 910 and closed the position when the index futures was 892, you incurred: A) a gain of \$9,000. B) a loss of \$9,000. C) a loss of \$18,000. D) a gain of \$18,000. E) None of the above. Answer: A Difficulty: Easy Rationale: (\$910 - \$892) X 250 X 2 = \$9,000 Bodie, Investments, Sixth Edition 1

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Chapter 23 Futures and Swaps: A Closer Look 4. If a stock index futures contract is overpriced, you would exploit this situation by: A) selling both the stock index futures and the stocks in the index. B) selling the stock index futures and simultaneously buying the stocks in the index. C) buying both the stock index futures and the stocks in the index. D) buying the stock index futures and selling the stocks in the index. E) None of the above. Answer: B Difficulty: Moderate Rationale: If one perceives one asset to be overpriced relative to another asset, one sells the overpriced asset and buys the other one. 5. The "Triple Witching Hour" is a term used to refer to the simultaneous expiration of: A) S&P 100 stock index options and the Major Market Index futures and option contracts. B) S&P 500 futures, S&P index options, and options on individual stocks. C) S&P 500 futures, options on futures and options on dividend stocks. D) S&P 100 stock index options, options of futures and options on individual stocks. E) S&P 500 futures, DJIA futures and individual stock options. Answer: B Difficulty: Moderate Rationale: Program trading, which is a product of the triple witching hour, was thought to cause the 1987 market crash. Since that crash, a number of "circuit breakers" have been put in place. One of the circuit breakers is that expiring contracts on the S&P 500, S&P 100, and the NYSE now cease trading on Thursday afternoon rather than Friday. The contracts are marked to market for the last time on Friday using the stock index value at market opening. Futures and options on the Major Market Index and the Value Line Index are settled, as before, based on Friday closing price. 6.
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## This note was uploaded on 02/24/2010 for the course FINA 4310 taught by Professor Impson during the Spring '10 term at North Texas.

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Chap023 - Chapter 23 Futures and Swaps A Closer Look...

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