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Managerial Economics Free Essay Sample

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Managerial Economics Free Essay Sample

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

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