1. Derivative instruments are: a) Assets such as bonds and stocks that derive th
ID: 1185547 • Letter: 1
Question
1. Derivative instruments are: a) Assets such as bonds and stocks that derive their value from the value of the companies that issue them. b) Government bonds. c) Assets that derive their value from underlying assets. d) An index of stock values such as the S&P; 500. 2. An options contract: a) Confers the right to buy or sell an asset at a predetermined price at a predetermined time. b) Is a contract that requires delivery of a commodity on a specific date. c) Gives the buyer the option to purchase a futures contract by a given date. d) Is only used for foreign exchange transactions. 3. The buyer of a call option: a) Must purchase the underlying asset on the expiration date of the contract. b) Must sell the underlying asset on the expiration date of the contract. c) May exercise the contract if the price of the underlying asset increases above the strike price. d) May exercise the contract if the price of the underlying asset decreases below the strike price. 4. The buyer of a put option: a) Must purchase the underlying asset on the expiration date of the contract. b) Must sell the underlying asset on the expiration date of the contract. c) May exercise the contract if the price of the underlying asset increases above the strike price. d) May exercise the contract if the price of the underlying asset decreases below the strike price. 5. If prices of existing options contracts for call options on IBM stocks are rising, this would be the result of: a) Call option prices will soon fall again. b) A reduction in the dividend paid by IBM. c) IBM share prices will be higher in the future. d) IBM share prices will be lower in the future. 6. The buyers of a futures contract: a) Assumes the short position. b) Assumes the long position. c) Is required to receive the underlying stock or commodity at the specified future date. d) Is expecting the price of the underlying stock or commodity to decrease before the contract expires. 7. If you sell a futures contract for IBM and on the delivery date the share price of IBM is lower than the contract price: a) Lost money on your long position. b) Lost money on your short position. c) Gained money on your long position. d) Gained money on your short position. 8. Potential loses are unbounded (unlimited): a) If the buyer of a long contract sees the price of the underlying asset increase. b) If the buyer of a long contract sees the price of the underlying asset decrease. c) If the seller of a short contract sees the price of the underlying asset increase. d) If the seller of a short contract sees the price of the underlying asset decrease. 9. Assume that IBM is trading for $100 a share and you purchase a call option with a strike price of $105 a share. Also assume that the price of the option equals $200. a) You would profit by exercising the option if IBM's share price increases to $103 a share. b) You would profit by exercising the option if IBM's share price increases to $110 a share. c) You would profit by exercising the option if IBM's share price decreases to $97 a share. d) Both answers a) and b) are correct. 10. Assume that IBM is trading for $100 a share and you purchase a put option with a strike price of $95 a share. Also assume that the price of the option equals $500. a) You would profit by exercising the option if IBM's share price increases to $103 a share. b) You would profit by exercising the option if IBM's share price decreases to $97 a share. c) You would profit by exercising the option if IBM's share price decreases to $88 a share. d) Both answers b) and c) are correct.Explanation / Answer
over half of these are wrong.
here are the right answers
1.c
2.a
3.c
4. d
5. c
6.b
7. d
8. c
9. b
10.c
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