FINC 340 UNIT #5 WEEKLY QUIZ ANSWER SHEET

Subject: Business / Finance
Question
FINC 340: INVESTMENTS

UNIT #5 WEEKLY QUIZ QUESTION SHEET

DIRECTIONS: Here is the Unit #5 Weekly Quiz Question Sheet that you should submit to your Unit #5 Homework Assignment Folder.

Please submit your Unit #5 Quiz Answer Sheet in MS Word format with the following file name: LastNameFirstInitial_Unit 05_QuizAnswerSheet.docx. For example, if you name is John Smith, the file name of your Answer Sheet should be SmithJ_Unit05_QuizAnswerSheet.docx.

If you have any questions or comments, please do not hesitate to contact me.

NAME: _____________________________________

Question Number

Question

1

Which of the following is TRUE regarding the purchase of a call option?

A. The yield on the purchaser’s portfolio would increase by purchasing the option

B. The purchaser would limit the amount of money he could lose if the underlying stock declined.

C. The purchaser would benefit if the underlying stock declined.

D. The purchaser would exercise the option if the stock declined.

2

Which of the following is a FALSE statement about the point-of-view of the call option holder:

A. In-the-money is when the underlying price is greater than the stock price

B. At-the-money is when the underlying price is equal to the stock price

C. Out-of-the money is when underlying orice is greater than the stock price

D. After-the-money is when the premium is deducted from the underying stock price

3

Which of the following option strategies has the greatest amount of investor risk?

A. Buying a long straddle

B. Writing an uncovered put

C. Writing an uncovered call

D. Buying a long combination
4

How can you describe “derivative” markets?

A. Something that cannot exist on its own

B. Finanical market instruments

C. Financial market indices

D. Spot finanical instruments

5

A writer of an uncovered call option would profit if the

I. Underlying common stock goes up

II. Underlying common stock goes down

III. Call expires

A. I only

B. II only

C. I and III only

D. II and III only

6

Derivatives “piggyback” on:

I. The debt market

II. The equity market

III. The forex market

IV. The commodity market

A. I and II

B. I, II, and III

C. I, II, IV

D. I, II, III and IV

7

List the advantages of the forward markets:

I. Flexibiity with regard to delivery dates

II. Flexibility with regard to size of contract

III. Quality of the asset

IV. Transation costs are locked

A. I and II

B. I, II and III

C. I, II and IV

D. I, II, III, and IV

8

Your client purchased 300 shares of Speedy Airlines common stock at $28 a share in July of 2015. In June of 2016 the client writes 2 October 35 calls at 5 against the stock position. If the market of Speedy Airliens is trading at $39 at expiration, what is the client’s realized gain?

A. $1,000

B. $1,700

C. $2,400

D. $4,300
9

Futures differ from options in all of the following ways EXCEPT:

A. The future buyer has the obligation to buy the commodity at the specified price and at the spcified time.

B. The option buyer has the obligation to buy the security at the specified price and at the specified time.

C. Futures contracts require the delivery of an asset at the settlement date (or offsetting transaction); options may be exercised at any time up to the expiration date, or they may expire unexercised.

D. Future contracts can be both on margin, while options cannot.

10

A Put is an Option to Sell:

A. True

B. False

11

John, a short seller is trying to determine his break-even point. With no other securities, John plans to short sell 100 shares of XYZ at $40. Next John plans to sell an XYZ October Put for $500. John will break-even when the price of the stock is at:

A. $35

B. $50

C. $45

D. $50

12

A Call is an Option to Buy:

A. True

B. False

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