Question 39 A hedge strategy known as a collar agreement involves the simultaneo
ID: 2637389 • Letter: Q
Question
Question 39
A hedge strategy known as a collar agreement involves the simultaneous
Purchase of an in-the money put and purchase of an out-of-the-money call on the same underlying asset with same expiration date and market price.
Sale of an out-of-the money put and sale of an out-of-the-money call on the same underlying asset with same expiration date and market price.
Purchase of an in-the money put and purchase of an in-the-money call on the same underlying asset with same expiration date and market price.
Purchase of an out-of-the money put and sale of an out-of-the-money call on the same underlying asset with same expiration date and market price.
Sale of an in-the money put and purchase of an in-the-money call on the same underlying asset with same expiration date and market price.
Question 30
General obligation bonds are
U.S. Treasury bonds backed by the full faith and credit of the issuer.
U.S. Treasury bonds backed by income generated form specific projects.
Municipal bonds backed by the full faith and credit of the issuer.
Municipal bonds backed by income generated from specific projects.
A type of U.S. agency security.
Question 29
The growth rate of equity earnings without external financing is equal to
Retention rate plus return on equity.
Retention rate minus return on equity.
Retention rate divided by return on equity.
Retention rate times return on equity.
Return on equity divided by retention rate.
Question 28
Growth rates of the (1) labor force, (2) average number of hours worked and (3) labor productivity are the main determinants of a foreign country's
Dividend payout ratio.
Beta.
Real risk free rate.
Nominal risk free rate.
Risk premium.
Question 26
According to the dividend growth model, if a company were to declare that it would never pay dividends, its value would be
Based on earnings.
Based on expectations regarding.
Higher than similar firms since it could reinvest a greater amount in new projects.
Zero.
Based on the capital asset pricing model.
Question 16
Cyclical companies are firms where
Sales, earnings and cash flows are extremely uncertain and not necessarily related to the economy.
Sales, earnings and cash flows are likely to withstand changes caused by the economic environment.
Sales, earnings and cash flows are heavily influenced by aggregate business activity.
Sales, earnings and cash flows are growing exponentially.
None of the above.
Question 15
The franchise P/E is a function of
Relative rate of return on new business opportunities
Size of superior return opportunities.
Duration of earnings growth.
a and b
a, b and c
Question 14
The financial risk for the retail store industry is difficult to judge because of
Convertible debt.
Numerous building leases.
Warrants.
Variable operating profits.
Extensive use of preferred stock.
Question 13
Which of the following statements concerning the competitive environment is true?
High fixed costs encourage firms to produce at a low level of capacity, in order to minimize fixed cost per unit produced.
Low current prices relative to costs in an industry indicate low barriers to entry.
Substantial economies of scale do not give a current industry member an advantage over a new firm.
The ability to substitute another product limits the industry's profit potential.
Buyers and suppliers do not influence the profitability of an industry.
Question 12
Which of the following is not a competitive force suggested by Porter?
Rivalry among existing competitors
Threat of new entrants
Threat of substitute products
Government and regulatory influences
None of the above (that is, all are competitive forces)
Question 11
At what stage in the industrial life cycle is there an influx of competition?
Early pioneering development
Rapid accelerating growth
Acquisition and consolidation
Mature growth
Stabilization and market maturity
Question 10
All of the following factors affect the required rate of return except
The economy's risk free rate.
Corporate business risk.
Return on equity.
Country risk.
Expected rate of inflation.
Question 9
Aggregate return on equity increases as
Profit margins increase.
Total asset turnover increases.
Financial leverage increases.
Equity turnover decreases.
All of the above.
Question 8
The dividend payout ratio, the required rate of return on common equity, and the expected growth rate of stock dividends are the major variables that affect
The profit margin for the S&P Industrials Index.
The earnings multiplier for common stock.
Aggregate tax revenues.
Capital gains tax revenues.
Aggregate GDP.
Question 7
Expected earnings per share estimates requires all of the following except
A sales per share estimate.
A GDP estimate.
An aggregate operating profit margin estimate
An estimate of the real risk-free rate.
A tax rate estimate.
Which of the following is not normally associated with cyclical indicators?
The Securities and Exchange Commission (SEC)
The National Bureau of Economic Research (NBER)
Business Week
Center for International Business Cycle Research (CIBCR)
All of the above
Question 3
Excess liquidity is defined as
The year-to year percentage change in the M2 money supply less the year-to-year percentage change in the nominal GNP.
The growth rate in M2 money supply less the growth rate in M1 money supply.
The year-to-year percentage change in the M1 money supply less the year-to-year percentage.
The year-to-year percentage change in the "real" GNP less the year-to-year percentage change in the nominal GNP.
None of the above
Question 2
Which of the following is not an analytical measure used by the NBER to examine behavior within a series?
Diffusion indexes
Rates of change
Direction of change
Ratios among series
Comparison with previous cycles
Purchase of an in-the money put and purchase of an out-of-the-money call on the same underlying asset with same expiration date and market price.
Sale of an out-of-the money put and sale of an out-of-the-money call on the same underlying asset with same expiration date and market price.
Purchase of an in-the money put and purchase of an in-the-money call on the same underlying asset with same expiration date and market price.
Purchase of an out-of-the money put and sale of an out-of-the-money call on the same underlying asset with same expiration date and market price.
Sale of an in-the money put and purchase of an in-the-money call on the same underlying asset with same expiration date and market price.
Explanation / Answer
Correct Option is (d)
Collar is one of the strategies for risk management. The day speculators and traders can use this strategy to manage or minimize the risk. This collar strategy is used to hedge the risk against on long term positions of equity investment.
This collar strategy is a mechanism to hedge the risk against your investment i.e. to purchase one out-of-the-money put contract and sell one out-of-the-money call contract.
Therefore, the correct option is
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