Investment Management 1. You think that the stock price of NFLX will go up signi

Question

Investment Management

1. You think that the stock price of NFLX will go up significantly once the earning comes out next week. Which of the following trade might result in most profit?
a. Buying on margin
b. Long call option
c. Short put option
d. Both b and c

2. Traditional finance theory on risk and return assumes that higher return must be associated with higher risk because:
a. Risk and return are measured in short time frame (i.e. annually or monthly)
b. Higher return assets always have higher risk regardless of the time frame.
c. It is easier to sell more liquid assets such as bonds and thus reduce the level of risk
d. Bond returns are guaranteed where stock returns are not

3. In class discussion, I demonstrated that time premium for options ______ with time for out of the money options and ______ with time with in the money options.
a. increases/increases
b. decreases/decreases
c. decreases/increases
d. increases/decreases

Explanation / Answer

d. Both b and c

b. Higher return assets always have higher risk regardless of the time frame.

b. decreases/decreases

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