# Managerial Economics Free Essay Sample

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1. What phrase is often used interchangeably with the phrase market capitalization? (Points : 1) Market value

Open Interest

Trading volume

Notional value |

2. Assume that an investor lends 100 shares of Jiffy, Inc. common stock to a short seller. The bid-ask prices are $32.00 – $32.50. When the position is closed the bid-ask prices are $32.50 – $33.00. The commission rate is 0.5%. The market interest rate is 5.0% and the short rebate rate is 3.0%. Calculate the gain or loss to the lender. Assume the lender is not subject to a bid-ask loss or commissions. (Points : 1) $164.00 loss

$100.00 gain

$100.00 loss

$164.00 gain |

3. During the growing season a corn farmer sells short corn futures contracts in an amount equal to her crop. If upon harvesting and selling her crop she maintains the contracts, she is then considered a: (Points : 1) Speculator

Arbitrager

Hedger

None of the above |

4. What kind of risk does not disappear when spread across many investors? (Points : 1) Diversifiable

Catastrophic

Predictive

Nondiversifiable |

5. Who from the following list would be considered a speculator by entering into a futures or options contract on commodities?(Points : 1) Corn delivery truck driver

Food manufacturer

Farmer

None of the above |

6. Assume that you purchase 100 shares of Jiffy, Inc. common stock at the bid-ask prices of $32.00 – $32.50. When you sell the bid-ask prices are $32.50 – $33.00. If you pay a commission rate of 0.5%, what is your profit or loss? (Points : 1) $32.50 loss

$16.25 loss

$0

$32.50 gain |

7. Which of the following is not a derivative instrument? (Points : 1) Installment sales agreement

Option agreement to buy land

Contract to sell corn

Mortgage backed security |

8. According to trading volume data tabulated for 2002, which international futures exchange market experienced the highest total trading volume in the world? (Points : 1) Chicago Board of Trade

Chicago Mercantile Exchange

New York Mercantile Exchange

Eurex |

9. All of the following are financially engineered products, except: (Points : 1) Mortgage backed security

Principal only

Mortgage

Interest only |

10. What phrase might be used to describe the initial transaction a short seller initiates when shorting an equity security? (Points : 1) Covering

Buy

Sell

Borrow |

11. The total number of contracts which exist and are delivery or payment is

referred to as the ___________________. (Points : 1) Market value

Notional value

Trading volume

Open Interest |

12. This measures the number of financial claims that change hands either daily or annually. (Points : 1) Open Interest

Notional value

Market value

Trading volume |

13. A mutual fund is engaged in the short term and temporary purchase of index futures, for purposes of minimizing its cash exposures. Which “use” most closely explains their actions? (Points : 1) Speculation

Reduced transaction costs

Regulatory arbitrage

Risk management |

14. Which of the following phrases is used to describe an option where immediate exercise results in a negative payoff? (Points : 1) At-the-money

Near-the-money

In-the-money

Out-of-the-money |

15. The premium on a long term call option on the market index with an exercise price of 950 is $12.00 when originally purchased. After 6 months the position is closed and the index spot price is 965. If interest rates are 0.5% per month, what is the Call Payoff?(Points : 1) $12.00

$15.00

$12.36

$2.64 |

16. The spot price of the market index is $900. The annual rate of interest on treasuries is 4.8% (0.4% per month). After 3 months the market index is priced at $920. An investor has a long call option on the index at a strike price of $930. What profit or loss will the writer of the call option earn if the option premium is $2.00? (Points : 1) $2.00 loss

$2.00 gain

$2.02 gain

$2.02 loss |

17. The spot price of the market index is $900. After 3 months the market index is priced at $920. The annual rate of interest on treasuries is 4.8% (0.4% per month). The premium on the long put, with an exercise price of $930, is $8.00. What is the profit or loss at expiration for the long put? (Points : 1) $1.90 gain

$1.90 loss

$2.00 gain

$2.00 loss |

18. Which type of option is least likely to be exercised? (Points : 1) In-the-money

Near-the-money

Out-of-the-money

At-the-money |

19. The spot price of the market index is $900. A 3-month forward contract on this index is priced at $930. The market index rises to $920 by the expiration date. The annual rate of interest on treasuries is 4.8% (0.4% per month). What is the difference in the payoffs between a long index investment and a long forward contract investment? (Assume monthly compounding) (Points : 1) $19.16

$26.40

$43.20

$10.84 |

20. The spot price of the market index is $900. After 3 months the market index is priced at $920. The annual rate of interest on treasuries is 4.8% (0.4% per month). The premium on the long put, with an exercise price of $930, is $8.00. At what index price does a long put investor have the same payoff as a short index investor? Assume the short position has a breakeven price of $930. (Points : 1) $940.00

$938.10

$930.00

$921.90 |

21. What term may be used to describe a long put position in which the exercise price is below the asset price? (Points : 1) At-the-money

Out-of-the-money

In-the-money

Near-the-money |

22. The spot price of the market index is $900. A 3-month forward contract on this index is priced at $930. The annual rate of interest on treasuries is 4.8% (0.4% per month). What annualized rate of interest makes the net payoff zero? (Assume monthly compounding) (Points : 1) 11.2%

13.2%

8.5%

4.8% |

23. A put option if purchased and held for 1 year. The exercise price on the underlying asset is $40. If the current price of the asset is $36.45 and the future value of the original option premium is (- $1.62 ), what is the put profit, if any at the end of the year? (Points : 1) $1.62

$5.17

$1.93

$3.55 |

24. The premium on a call option on the market index with an exercise price of 1050 is $9.30 when originally purchased. After 2 months the position is closed and the index spot price is 1072. If interest rates are 0.5% per month, what is the Call Profit? (Points : 1) $12.61

$9.30

$9.39

$22.00 |

25. The spot price of the market index is $900. A 3-month forward contract on this index is priced at $930. What is the profit or loss to a short position if the spot price of the market index rises to $920 by the expiration date? (Points : 1) $20 loss

$10 gain

$20 gain

$10 loss |

26. Which strike price is reflective of an out-of- the-money long call with an asset price of $34? (Points : 1) $36

$32

$34

$38 |

27. Which of the following phrases is used to describe an option where immediate exercise results in a positive payoff? (Points : 1) Near-the-money

Out-of-the-money

At-the-money

In-the-money |

28. The spot price of the market index is $900. After 3 months the market index is priced at $920. The annual rate of interest on treasuries is 4.8% (0.4% per month). The premium on the long put, with an exercise price of $930, is $8.00. Calculate the profit or loss to the short put position if the final index price is $915. (Points : 1) $15.00 loss

$6.90 gain

$6.90 loss

$15.00 gain |

29. What strategy is an investor most likely to employ to insure against the losses associated with a straddle write? (Points : 1) Ratio call write

Butterfly spread

Bull spread

Strangle |

30. Which strategy is a bet that the actual volatility of an asset is low relative to the market’s assessment? (Points : 1) Written straddle

Purchased straddle

Long Call

Long Put |

31. What strategy is an investor most likely to employ to reduce the high premium cost associated with a strangle strategy?(Points : 1) Bull spread

Butterfly spread

Strangle

Ratio call write |

32. A strategy consists of buying a market index product at $830 and longing a put on the index with a strike of $830. If the put premium is $18.00 and interest rates are 0.5% per month, compute the profit or loss from the long put position by itself (in 6 months) if the market index is $810. (Points : 1) $1.36 loss

$3.45 gain

$1.45 gain

$2.80 loss |

33. A strategy consists of buying a market index product at $830 and longing a put on the index with a strike of $830. If the put premium is $18.00 and interest rates are 0.5% per month, compute the profit or loss from the long index position by itself expiration (in 6 months) if the market index is $810. (Points : 1) $18.00 gain

$45.21 loss

$21.22 loss

$24.25 gain |

34. What is the maximum profit that an investor can obtain from a strategy employing a long 830 call and a short 850 call over 6 months? Interest rates are 0.5% per month. (Points : 1) $12.32

$6.80

$9.24

$7.68 |

35. What is the maximum loss that an investor can obtain over 6 months from a strategy employing a long 830 call and a short 850 call? Interest rates are 0.5% per month. (Points : 1) $12.32

$7.68

$9.24

$6.80 |

36. Which of the following strategies represents a purchased put and a written call for which the premiums are equal? (Points : 1) Ratio call write

Butterfly spread

Bull spread

Strangle |

37. A strategy consists of buying a market index product at $830 and longing a put on the index with a strike of $830. If the put premium is $18.00 and interest rates are 0.5% per month, what is the profit or loss at expiration (in 6 months) if the market index is $810? (Points : 1) $18.65 gain

$20.00 gain

$36.29 loss

$43.76 loss |

38. A strategy consists of buying a market index product at $830 and longing a put on the index with a strike of $830. If the put premium is $18.00 and interest rates are 0.5% per month, what is the estimated price of a call option with an exercise price of $830? (Points : 1) $49.55

$47.67

$42.47

$45.26 |

39. At the 6-month point, what is the breakeven index price for a strategy of longing the market index at a price of 830? Interest rates are 0.5% per month. (Points : 1) $855.21

$830.00

$866.32

$802.12 |

40. A strategy consists of longing a put on the market index with a strike of 830 and shorting a call option on the market index with a strike price of 830. The put premium is $18.00 and the call premium is $44.00. Interest rates are 0.5% per month. What is the breakeven price of the market index for this strategy at expiration (in 6 months)? (Points : 1) $830.00

$866.32

$855.21

$802.12 |

41. A position in which you buy a call and sell an otherwise identical call with a higher strike price is called a ________. (Points : 1) Butterfly spread

Ratio call write

Bull spread

Strangle |

42. The $850 strike put premium is $25.45 and the $850 strike call is selling for $30.51. Calculate the breakeven index price for a strategy employing a short call and long put that expires in 6 months. Interest rates are 0.5% per month. (Points : 1) $822.67

$824.79

$875.82

$830.76 |

43. What is the break even point that an investor can obtain from a 6-month strategy employing a long 830 call and a short 850 call? Interest rates are 0.5% per month. (Points : 1) $832.82

$852.22

$862.92

$842.32 |

44. Which of the following strategies is the appropriate one if you have no view on the stock-price direction and you think volatility will fall? (Points : 1) Buying puts

Selling the underlying

Buying calls

Writing a straddle |

45. An investor purchases a call option with an exercise price of $55 for $2.60. The same investor sells a call on the same security with an exercise

price of $60 for $1.40. At expiration, 3 months later, the stock price is $56.75. All other things being equal and given an annual interest rate of 4.0%, what is the net profit or loss to the investor? (Points : 1) $0.54 gain

$1.21 loss

$1.50 loss

$1.65 gain |

46. Which of the following strategies is the appropriate one if you are bullish about the stock-price direction and you think volatility will increase? (Points : 1) Buying puts

Selling the underlying

Buying calls

Buying straddle |

47. As a writer of a straddle position, how would you insure against large losses? (Points : 1) Buying an out-of-the-money put and buying an out-of-the-money call Buying an in-the-money put and selling an out-of-the-money call Selling an out-of-the-money put and buying an in-the-money call Selling an out-of-the-money put and selling an out-of-the-money call | 48. An insured asset position is equivalent to: (Points : 1) -Zero-coupon bond – call

-Zero-coupon bond + put

Zero-coupon bond – put

Zero-coupon bond + call |

49. Which of the following strategies is not a volatility play? (Points : 1) Straddle

Strangle

Bull spread

Butterfly spread |

50. Assume that you open a 100 share short position in Jiffy, Inc. common stock at the bid-ask prices of $32.00 – $32.50. When you close your position the bid-ask prices are $32.50 – $33.00. You pay a commission rate of 0.5%. The market interest rate is 5.0% and the short rebate rate is 3.0%. What is your additional gain or loss due to leasing the asset? (Points : 1)

$96 gain

$160 loss

$64 loss

$64 gain