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Unformatted text preview: Saint Joseph’s Universi
Haub School of Business, Departme t of Finance
Derivatives: FIN 612, Spring 2012
Quiz Chapter 1 & 2 NAME (Please Print Clearly) Score 1. Which of the following is not a derivative instrument? (a) Contract to sell corn (b) Option agreement to buy land
é} Installment sales agreement (d) Mortgage backed security Answer c 2. The spot price of the market index is $900. A 3—month forward ontract on this index is priced at
$930. What is the proﬁt or loss to a short position if the spot p ce of the market index rises to $920 by the expiration date?
(a) $20 gain
(b) $20 loss E $10 gain
((1) $10 loss Answer 3. Who from the following list would be considered a speculator y entering into a futures or options
contract on commodities?
(a) Farmer
ﬂ Corn delivery truck driver
(0) Food manufacturer
(d) None of the above Answer 6 4. The spot price of the market index is $900. A 3—month forward ontract on this index is priced at
$930. The market index rises to $920 by the expiration date. T annual rate of interest on
treasuries is 4.8% (0.4% per month). What is the difference in t e payoffs between a long index
investment and a long forward contract investment? (Assume onthly compounding.) (a) $10.84
4?) $19.16
(c) $26.40
(cl) $43.20 Answer 6 5. A mutual fund is engaged in the short term and temporary pure ase of index futures, for purposes
of minimizing its cash exposures. Which “use” most closely ex lains their actions? Q Risk management (b) Speculation 9) Reduced transaction costs
((1) Regulatory ar 'trage Answer n The spot price of the market index is $900. A 3month forward ontract on this index is priced at
$930. The annual rate of interest on treasuries is 4.8% (0.4% pe month). What annualized rate of
interest makes the net payoff zero? (Assume monthly compoun ing.) (a) 4.8% (b) 8.5% (c) 11.2% “(13.2% Answer 0 During the growing season a corn farmer sells short corn ﬁiture contracts in an amount equal to
her crop. If upon harvesting and selling her crop she maintains he contracts, she is then considered a:
(a) Hedger
k) Speculator
(c) Arbitrager
((1) None of the above Answer ‘ g The spot price of the market index is $900. After 3 months the arket index is priced at $920.
An investor has a long call option on the index at a strike price f $930. After 3 months What is the investor’s proﬁt or loss?
(a) $10 loss
45) $0
(c) $10 gain
((1) $20 gain Answer a The spot price of the market index is $900. After 3 months the arket index is priced at $920. The
annual rate of interest on treasuries is 4.8% (0.4% per month). he premium on the long put, with
an exercise price of $930, is $8.00. What is the proﬁt or loss at xpiration for the long put? (a) $2.00 gain (b) $2.00 loss ﬂ $1.90 gain
(d) $1.90 loss Answer___é__ 10. The spot price of the market index is $900. After 3 months the arket index is priced at $920. The
annual rate of interest on treasuries is 4.8% (0.4% per month). he premium on the long put, with
an exercise price of $930, is $8.00. At What index price does a ng put investor have the same
payoff as a short index investor? Assume the short position has a breakeven price of $930. (a) $921.90 (b) $930.00 J!) $938.10
(d) $940.00 Answer C 11. What is the cost of 100 shares of Jiffy, Inc. stock given that the id~ask prices are $31.25 — $32.00
and a $15.00 commission per transaction exists? «57 $3215 (13) $3140
(C) $3125
((1) $3200 Answer A 12. All of the positions listed will beneﬁt from a price decline, exce t: 13. 14. 15. mhort put
(b) Long put
(0) Short call
((1) Short stock Answer Assume that you purchase 100 shares of Jiffy, Inc. common sto k at the bid—ask prices of $32.00 —
$32.50. When you sell the bidask prices are $32.50 — $33.00. I you pay a commission rate of
0.5%, what is your proﬁt or loss?
(a) $0
(b) $16.25 loss
(0) $32.50 gain a $32.50 loss Answer 0 Assume that you open a 100 share short position in Jiffy, Inc. c mmon stock at the bidask price of
$32.00 — $32.50. When you close your position the bidask pric s are $32.50  $33.00. If you pay
a commission rate of 0.5%, calculate your proﬁt or loss on the hort investment?
(a) $32.50 gain
(b) $16.25 loss «$132.50 loss
(d) $100.00 gain C. The spot price of the market index is $900. The annual rate of i terest on treasuries is 4.8% (0.4% per month). After 3 months the market index is priced at $920. An investor has a long call
option on the index at a strike price of $930. What proﬁt or 10s will the writer of the call option earn if the option premium is $2.00?
(a) $2.00 gain
(b) $2.00 loss Answer 6 $2.02 gain ((1) $2.02 loss Answer Q 16. 17. 18. 19. 20. The spot price of the market index is $900. After 3 months the arket index is priced at $920. The
annual rate of interest on treasuries is 4.8% (0.4% per month). e premium on the long put, with
an exercise price of $930, is $8.00. Calculate the proﬁt or loss t the short put position if the final
index price is $915. (a) $15.00 gain (b) $15.00 loss ﬂ) $6.90 gain ((1) $6.90 loss Answer Q Assume that you open a 100 share short position in Jiffy, Inc. c mmon stock at the bidask prices
of $32.00 — $32.50. When you close your position the bid—ask p ices are $32.50 — $33.00. You pay
a commission rate of 0.5 %. The market interest rate is 5.0 % the short rebate rate is 3.0 %.
What is your additional gain or loss due to leasing the asset? ﬂ $64.00 loss (1)) $160.00 loss
(c) $96.00 gain
(d) $0 Answer I  If your homeowner’s insurance premium is $1,000 and your de uctible is $2000, what could be
considered the strike price of the policy if the home has a value f $120,000? ”$118,000 (b) $120,000
(0) $117,000
(d) $122,000 Answer A put option if purchased and held for 1 year. The Exercise pri on the underlying asset is $40. If
the current price of the asset is $36.45 and the ﬁiture value of original option premium is
(— $1.62 ), What is the put proﬁt. if any at the end of the year? (c) $3i55
(01) $5.17 Answer 5 The Seller of 21 Put Option has what risk position for the Underl ing Security at Expiration?
(a) Right to Buy the Underlying Security (b) Obligation to Sell the Underlying Security (c) Right to Sell the Underlying Security @ Obligation t Buy the Underlying Security
Answer A ...
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