1) Which of the following contract terms is not by the future exchange?
a) the range of dates on which delivery can occur
b) the delivery locations
c) the deliverable commodities
d) the size of the contract
e) the future price
2) Which of the following is NOT true?
a) When a CBOE option on IBM is excercised, IBM issues more stock
b) An American Option can be exercised at any time during its life
c) A call option can be exercised if the underlying asset price is greater than the strike price
d) A put option can be exercised if the strike price is greater than the underlying asset price
3) A trader takes a short position in a one year forward contract in order to sell an asset for $60 when the spot price is $58. The spot price in one year proves to be $63. What is the trader’s gain or loss?
a) $2 gain
b) $3 gain
c) $2 loss
d) $3 loss
e) no gain or loss
4) A trader buys a one year GE option with a strike price of $20. One call option contract gives the option holder the right to buy 100 shares of GE stock. The current option price is $2. Therefore the trader pays $200 today for this call option ($2 times 100 = $200). The price of GE stock turns out to be $25 in one year. What is the trader’s net gain or loss at maturity? Please ignore the time value of money.
a) $500 gain
b) $300 gain
c) $500 loss
d) $200 loss
5. A trader sells a one year IBM put option with strike price of $150. The put option contract gives the option holder the right to sell 100 shares of IBM stock at the strike price of $50. The option price is $4. Therefore the trader receives $400 today ($4 times 100 = $400). It turns out that IBM stock price falls to $41 in one year. What is the trader’s net gain or loss? Please ignore time value of money.
a) $900 gain
b) $500 gain
c) $500 loss
d) $900 loss
6. Which of the following is true?
a) Both forward and future contracts traded on exchanges.
b) Forward contracts are traded on exchanges, but future contracts are not.
c) Future contracts are traded on exchanges, but forward contracts are not.
d) Neither future contracts nor forward contracts are traded on exchanges.
7. A company enters into a short futures contract to sell 50,000 pounds of cotton for 70 cents per pound. The initial margin is $4,000 and the maintenance margin is $3,000. At what settlement price will you start to have a margin call?
a) 68 cents
b) 72 cents
c) 76 cents
d) 64 cents
8. A trader buys a one year put option on the stock with a strike price of $30 when the price of the stock is $28. The cost for this option is $4. What is the breakeven price for this put option?
9. The price of a stock is $36 and the price of a three month call option on the stock with a stripe price of $36 is $3.60. Suppose a trader has $3,600 to invest and is trying to choose between buying 1,000 option and 100 shares of stock. How high does the stock price have to rise for an investment in options to be as profitable as an investment in the stock?
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