FIN612 Quiz 1 - Saint Joseph’s Universi Haub School of...

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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 3-month 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 bid-ask 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 bid-ask price of $32.00 — $32.50. When you close your position the bid-ask 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 bid-ask 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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