42. Assume the initial margin on a Swiss franc futures contract is $1, 50; if an

ID: 2799130 • Letter: 4

Question

42. Assume the initial margin on a Swiss franc futures contract is $1, 50; if an individual purchases two contracts at $.49 per franc and a contract involves 50, 000 swiss francs, what return on invested capital will the investor receive if the price per franc moves to $.53?

a. 100 percent

b.133 percent

c.200 percent

d. 75 percent

43. an investor buys an S& P 500 (indexed at $25o per point) stock index future at 1260.20. Sometimes later he will be able to sell the contract at 1271.60. the investors profit on this transactions will amount to :

a. $2350

b. $235

c. $2850

d. $1269

44. when an investor short sells a financial future contract:

a. the investor stands to make an unlimited amount of profit since there is no limit to how low it can fall

b. he/ she may be hedging if they do not own the underlying commodity

c. he/she is betting that the price of the underlying commodity or financial instrument will move due to increasing interest rates.

d. he/ she expects to profit from an increase in the price of the contract.

45. which of the following statements about the futures on future options are true :

a. For speculators, future options offer both increased returns pontential and reduce risk exposure.

b. if a put on an S&P 500 stock index future has a strike price of 175, it would be worth $2500 of the underlying stock index future were trading at 165

c. institutional investos are seeking higher risk when they use financial futures because high risk brings higher return

d. given platinum contracts trade in 50 oz, units, a platinum futures contract would cost $ 862.50 of its quoted at 17.25

46. an investor attempting to replicate a price- weighted index would hold an equal

a. percentage of outstanding shares of each security in the index

b. amount invested in each security in the index

c. number of units (shares) of each security in the indez

47. owning mutual funds enables the investor to receive all of the following except :

a. any service offered by the fund

b. professional management service and advise

c. diversification of investments

d. control over the investment portfolio

Explanation / Answer

Returns=50000*2*(0.53-49)=4000

Initial margin=2*1500=3000

Hence, return percent=4000/3000=133%

c. $2850 =(1271.6-1260.2)*250