PMBA 5181 - Exam 2 UPDATED Exam
Questions and CORRECT Answers
A call is said to be "in-the-money" when the strike price is ____________ the market price.
a.) equal to
b.) greater than
c.) less than
d.) may be more than one of the above, depending on the option premium - Correct Answerless t...
A call is said to be "in-the-money" when the strike price is ____________ the market price.
a.) equal to
b.) greater than
c.) less than
d.) may be more than one of the above, depending on the option premium - Correct Answer-
less than
An investor striving for maximum contracts will generally buy options that are:
a.) in-the-money
b.) out-of-the-money
c.) deep in-the-money
d.) at-the-money - Correct Answer- out-of-the-money
Option trading thrives under volatile pricing conditions and uncertainty. (true/false) - Correct
Answer- true
All of the following are advantages of buying call options instead of stock EXCEPT:
a.) options represent an opportunity to control shares of stock without making a large dollar
commitment
b.) commissions on stock trading are greater than those on options trading
c.) option trading can be considered very conservative and virtually risk-free
d.) all of the above are advantages - Correct Answer- option trading can be considered very
conservative and virtually risk-free
Cross-hedging refers to the practice of using one form of security to reduce risk on another
form of security. (true/false) - Correct Answer- true
Speculators are not significant participants in the commodities markets. (true/false) - Correct
Answer- false
, A(n) ________ contract is an agreement which provides for the delivery of a given amount of
something at a given time in the future, at a given price.
a.) seasonal
b.) futures
c.) options
d.) none of the above - Correct Answer- futures
Assume you have purchased a contract for 25,000 British pounds for $35,000. Your margin
requirement is $2,000. If the value of a pound increases .01, what is your percentage profit?
a.) 10.0%
b.) 12.5%
c.) 15.0%
d.) 8.0%
e.) none of the above - Correct Answer- 12.5%
The difference between speculators are hedgers is that speculators are _______, while
hedgers are ________.
a.) risk-takers; risk-averters
b.) individual investors; financial managers
c.) short term; long-term
d.) none of the above - Correct Answer- risk-takers; risk-averters
The difference between the cash market and the futures market is:
a.) that commodity prices cannot be negotiated in the futures market, while they can be in the
cash market
b.) that larger margins are used in the cash market
c.) that in the cash market, there must be a transfer of the physical possession of the goods
d.) that the commodities are usually less expensive in the futures market - Correct Answer-
that in the cash market, there must be a transfer of the physical possession of the goods.
The risk of a short sale is that the stock price
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