FIN 350 Week 7 Quiz

7/24/2019 FIN 350 Week 7 Quiz

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FIN 350 Week 7 Quiz – Strayer

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Quiz & Cha'ter (( an$ (3

Cha'ter (()Stock *aluation an$ +ik

. !he pri#e-earnin$% &a'uati(n meth(d app'ie% the )))) pri#e-earnin$% rati( t( ))))earnin$% per %hare in (rder t( &a'ue the *irm+% %t(#k.

a. *irm+%, indu%try

b. *irm+%, *irm+%

#. a&era$e indu%try, indu%tryd. a&era$e indu%try, *irm+%

. *irm i% epe#ted t( $enerate earnin$% (* . per %hare net year. !he mean rati( (*%hare pri#e t( epe#ted earnin$% (* #(mpetit(r% in the %ame indu%try i% 5. 1a%ed (n thi%in*(rmati(n2 the &a'uati(n (* the *irm+% %hare% ba%ed (n the pri#e-earnin$% meth(d i%

a. ..

b. 6.76.

#. 33.30.

d. n(ne (* the ab(&e

3. !he meth(d t( %t(#k &a'uati(n may re%u't in an ina##urate &a'uati(n *(r a *irm i* err(r%are made in *(re#a%tin$ the *irm+% *uture earnin$% (r in #h((%in$ the indu%try #(mp(%iteu%ed t( deri&e the rati(.a. !rue

b. Fa'%e

4. 1('(rk In#. i% epe#ted t( pay a di&idend (* 5 per %hare net year. 1('(rk+% di&idend%



7/24/2019 FIN 350 Week 7 Quiz


are epe#ted t( $r( by 3 per#ent annua''y. !he re8uired rate (* return *(r 1('(rk %t(#ki% 5 per#ent. 1a%ed (n the di&idend di%#(unt m(de'2 a *air &a'ue *(r 1('(rk %t(#k i%)))) per %hare.

a. 33.33

b. 66.67#. 4.67

d. 60.00

5. r(t%ky In#. 9u%t paid a di&idend (* .0 per %hare. !he di&idend $r(th rate *(r r(t%ky+%

di&idend% i% 3 per#ent per year. I* the re8uired rate (* return (n r(t%ky %t(#k i% per#ent2the %t(#k %h(u'd be &a'ued at )))) per %hare a##(rdin$ t( the di&idend di%#(unt m(de'.

a. 4.44

b. 5.

#. .

d. 75.53

6. !he 'imitati(n% (* the di&idend di%#(unt m(de' are m(re pr(n(un#ed hen &a'uin$ %t(#k%

a. that pay m(%t (* their earnin$% a% di&idend%.

b. that retain m(%t (* their earnin$%.

#. that ha&e a '(n$ hi%t(ry (* di&idend%.

d. that ha&e #(n%tant earnin$% $r(th.

7. ;an%e' In#. retain% m(%t (* it% earnin$%. !he #(mpany #urrent'y ha% earnin$% per %hare (*. ;an%e' epe#t% it% earnin$% t( $r( at a #(n%tant rate (* per#ent per year.Furtherm(re2 the a&era$e rati( (* a'' (ther *irm% in ;an%e'+% indu%try i% . ;an%e' i%epe#ted t( pay di&idend% per %hare (* 3.50 durin$ ea#h (* the net three year%. I*in&e%t(r% re8uire a 0 per#ent rate (* return (n ;an%e' %t(#k2 a *air pri#e *(r ;an%e' %t(#kt(day i% )))).

a. 3.<5

7/24/2019 FIN 350 Week 7 Quiz


b. .3

#. 05.5


. When e&a'uatin$ %t(#k per*(rman#e2 )))) mea%ure% &ariabi'ity that i% %y%temati#a''yre'ated t( market return%, )))) mea%ure% t(ta' &ariabi'ity (* a %t(#k+% return%.

a. beta, %tandard de&iati(n

b. %tandard de&iati(n, beta

#. inter#ept, beta

d. beta, err(r term

<. !he )))) i% #(mm(n'y u%ed a% a pr(y *(r the ri%k-*ree rate in the =apita' %%et ri#in$>(de'.

a. !rea%ury b(nd rate

b. prime rate

#. di%#(unt rate

d. *edera' *und% rate

0. beta (* . imp'ie% that the %t(#k ha% a ri%k premium (* .?.a. !rue

b. Fa'%e

. St(#k pri#e% (* @.S. *irm% primari'y in&('&ed in ep(rtin$ are 'ike'y t( be )))) a**e#ted bya eak d(''ar and )))) a**e#ted by a %tr(n$ d(''ar.

a. *a&(rab'y, ad&er%e'y

7/24/2019 FIN 350 Week 7 Quiz


7/24/2019 FIN 350 Week 7 Quiz


#. arbitra$e

d. mar$in

6. !he )))) inde #an be u%ed t( mea%ure ri%k-ad9u%ted per*(rman#e (* a %t(#k hi'e#(ntr(''in$ *(r the %t(#k+% beta.

a. Sharpe

b. !reyn(r

#. arbitra$e

d. mar$in

7. St(#k pri#e &('ati'ity in#rea%ed durin$ the #redit #ri%i%.a. !rue

b. Fa'%e

. !he Sharpe Inde mea%ure% the

a. a&era$e return (n a %t(#k.

b. &ariabi'ity (* %t(#k return% per unit (* return

#. %t(#k+% beta ad9u%ted *(r ri%k.

d. e#e%% return ab(&e the ri%k-*ree rate per unit (* ri%k.

<. %t(#k+% a&era$e return i% per#ent. !he a&era$e ri%k-*ree rate i% < per#ent. !he %t(#k+% beta i% and it% %tandard de&iati(n (* return% i% 0 per#ent. What i% the Sharpe IndeB

a. .05

b. .5#. .

7/24/2019 FIN 350 Week 7 Quiz


d. .0

e. .

0. %t(#k+% a&era$e return i% 0 per#ent. !he a&era$e ri%k-*ree rate i% 7 per#ent. !he %tandardde&iati(n (* the %t(#k+% return i% 4 per#ent2 and the %t(#k+% beta i% .5. What i% the !reyn(rInde *(r the %t(#kB

a. .03

b. .75

#. .33

d. .0

e. 50

. I* %e#urity pri#e% *u''y re*'e#t a'' market-re'ated in*(rmati(n %u#h a% hi%t(ri#a' pri#e

pattern% but d( n(t *u''y re*'e#t a'' (ther pub'i# in*(rmati(n2 %e#urity market% area. eak-*(rm e**i#ient.

b. %emi-%tr(n$ *(rm e**i#ient.

#. %tr(n$ *(rm e**i#ient.

d. 1 and =

e. n(ne (* the ab(&e

. I* %e#urity market% are %emi-%tr(n$ *(rm e**i#ient2 in&e%t(r% #ann(t %('e'y u%e )))) t( earne#e%% return%.

a. pre&i(u% pri#e m(&ement%

b. in%ider in*(rmati(n

#. pub'i#'y a&ai'ab'e in*(rmati(n

d. and =

7/24/2019 FIN 350 Week 7 Quiz


3. !he )))) i% #(mm(n'y u%ed t( determine hat a %t(#k+% pri#e %h(u'd ha&e been.

a. =apita' %%et ri#in$ >(de'

b. !reyn(r Inde

#. Sharpe Inde

d. 1 and =

4. %t(#k+% beta i% e%timated t( be .3. !he ri%k-*ree rate i% 5 per#ent2 and the market returni% epe#ted t( be < per#ent. What i% the epe#ted return (n the %t(#k ba%ed (n the =>B

a. 5. per#ent

b. .7 per#ent

#. 6.7 per#ent

d. 4 per#ent

e. 0. per#ent

5. ##(rdin$ t( the tet2 (ther thin$% bein$ e8ua'2 %t(#k pri#e% (* @.S. *irm% primari'yin&('&ed in ep(rtin$ #(u'd be )))) a**e#ted by a eak d(''ar. St(#k pri#e% (* @.S.imp(rtin$ *irm% #(u'd be )))) a**e#ted by a eak d(''ar.

a. ad&er%e'y, *a&(rab'y

b. *a&(rab'y, ad&er%e'y#. *a&(rab'y, *a&(rab'y

d. ad&er%e'y, ad&er%e'y

6. !he demand by *(rei$n in&e%t(r% *(r the %t(#k (* a @.S. *irm %('d (n a @.S. e#han$e may

be hi$her hen the d(''ar i% epe#ted t( ))))2 (ther thin$% bein$ e8ua'. %%ume the *irm+%(perati(n% are una**e#ted by the &a'ue (* the d(''ar.

7/24/2019 FIN 350 Week 7 Quiz


a. %tren$then

b. eaken

#. %tabi'ize

d. 1 and =

7. hi$her beta (* an a%%et re*'e#t%

a. '(er ri%k.

b. '(er #(&arian#e beteen the a%%et+% return% and market return%.

#. hi$her #(&arian#e beteen the a%%et+% return% and the market return%.


. !he CAanuary e**e#tC re*er% t( a 'ar$e

a. ri%e in the pri#e (* %ma'' %t(#k% in Aanuary. b. de#'ine in the pri#e (* %ma'' %t(#k% in Aanuary.

#. de#'ine in the pri#e (* 'ar$e %t(#k% in Aanuary.

d. ri%e in the pri#e (* 'ar$e %t(#k% in Aanuary.

<. !e#hni#a' ana'y%i% re'ie% (n the u%e (* )))) t( make in&e%tment de#i%i(n%.

a. intere%t rate%

b. in*'ati(nary epe#tati(n%

#. indu%try #(nditi(n%

d. re#ent %t(#k pri#e trend%

7/24/2019 FIN 350 Week 7 Quiz


30. !he #apita' a%%et pri#in$ m(de' => %u$$e%t% that the re8uired rate (* return (n a %t(#k i% dire#t'y in*'uen#ed by the %t(#k+% :

a. pre&ai'in$ 'e&e' (* the indu%try #(mpetiti(n.

b. beta.

#. 'i8uidity.

d. %ize market #apita'izati(n.

3. ##(rdin$ t( the #apita' a%%et pri#in$ m(de'2 the re8uired return by in&e%t(r% (n a %e#urityi%

a. in&er%e'y re'ated t( the ri%k-*ree rate.

b. in&er%e'y re'ated t( the *irm+% beta.

#. in&er%e'y re'ated t( the market return.


3. 1(ri% %t(#k ha% an a&era$e return (* 5 per#ent. It% beta i% .5. It% %tandard de&iati(n (*return% i% 5 per#ent. !he a&era$e ri%k-*ree rate i% 6 per#ent. !he Sharpe inde *(r 1(ri%%t(#k i%

a. 0.35.

b. 0.36.

#. 0.45.

d. 0..


33. >(r$an %t(#k ha% an a&era$e return (* 5 per#ent2 a beta (* .52 and a %tandard de&iati(n(* return% (* 0 per#ent. !he !reyn(r inde (* >(r$an %t(#k i%

a. 0.04.

b. 0.05.#. 0.35.

7/24/2019 FIN 350 Week 7 Quiz


d. 0.03.


34. Di'( %t(#k ha% an a&era$e return (* 5 per#ent2 a beta (* .52 and a %tandard de&iati(n (*return% (* 0 per#ent. !he Sharpe inde (* Di'( %t(#k i%

a. 0.36.

b. 0.35.

#. 0..

d. 0.45.


35. S(r&in( =(. i% epe#ted t( (**er a di&idend (* 3. per %hare per year *(re&er. !he re8uiredrate (* return (n S(r&in( %t(#k i% 3 per#ent. !hu%2 the pri#e (* a %hare (* S(r&in( %t(#k2

a##(rdin$ t( the di&idend di%#(unt m(de'2 i% )))).a. 4.06

b. 4.6

#. 40.63

d. 4.6


36. Eand'e %t(#k 9u%t paid a di&idend (* 4.76 per %hare and p'an% t( pay a di&idend (* 5 per%hare net year2 hi#h i% epe#ted t( in#rea%e by 3 per#ent per year %ub%e8uent'y. !here8uired rate (* return i% 5 per#ent. !he &a'ue (* Eand'e %t(#k2 a##(rdin$ t( the di&idenddi%#(unt m(de'2 i% )))).

a. 3<.67

b. 4.67

#. 33.33d. 3.73

7/24/2019 FIN 350 Week 7 Quiz



37. e1'an# In#. #urrent'y ha% earnin$% (* 0 per %hare2 and in&e%t(r% epe#t that theearnin$% per %hare i'' $r( by 3 per#ent per year. Furtherm(re2 the mean rati( (* a''(ther *irm% in the %ame indu%try a% e1'an# In#. i% 5. e1'an# i% epe#ted t( pay adi&idend (* 3 per %hare (&er the net *(ur year%2 and an in&e%t(r in e1'an# re8uire% areturn (* per#ent. What i% the *(re#a%ted %t(#k pri#e (* e1'an# in *(ur year%2 u%in$ thead9u%ted di&idend di%#(unt m(de'B

a. 50.00

b. 63.<#. 45.00

d. 6.3


3. !arzak In#. ha% earnin$% (* 0 per %hare2 and in&e%t(r% epe#t that the earnin$% per %harei'' $r( by 3 per#ent per year. Furtherm(re2 the mean rati( (* a'' (ther *irm% in the%ame indu%try a% !arzak i% 5. !arzak i% epe#ted t( pay a di&idend (* 3 per %hare (&erthe net *(ur year%2 and an in&e%t(r in !arzak re8uire% a return (* per#ent. !hee%timated %t(#k pri#e (* !arzak t(day %h(u'd be )))) u%in$ the ad9u%ted di&idend di%#(untm(de'.

a. 6.4

b. 04.<

#. 6.5


3<. !he %tandard de&iati(n (* a %t(#k+% return% i% u%ed t( mea%ure a %t(#k+%

a. &('ati'ity.

b. beta.

#. !reyn(r Inde.

7/24/2019 FIN 350 Week 7 Quiz


d. ri%k-*ree rate.

40. !he *(rmu'a *(r a %t(#k p(rt*('i(+% &('ati'ity d(e% n(t #(ntain the

a. ei$ht pr(p(rti(na' in&e%tment a%%i$ned t( ea#h %t(#k.

b. &arian#e %tandard de&iati(n %8uared (* return% (* ea#h %t(#k.

#. #(rre'ati(n #(e**i#ient% beteen return% (* ea#h %t(#k.

d. ri%k-*ree rate.

4. I* the return% (* t( %t(#k% are per*e#t'y #(rre'ated2 then

a. their beta% %h(u'd ea#h e8ua' .0.

b. the %um (* their beta% %h(u'd e8ua' .0.

#. their #(rre'ati(n #(e**i#ient %h(u'd e8ua' .0.

d. their p(rt*('i( %tandard de&iati(n %h(u'd e8ua' .0.

4. %t(#k+% beta #an be mea%ured *r(m the e%timate (* the u%in$ re$re%%i(n ana'y%i%.

a. inter#ept

b. market return

#. ri%k-*ree rate

d. %'(pe #(e**i#ient

43. beta (* . mean% that *(r a $i&en per#ent #han$e in the &a'ue (* the market2 the i%epe#ted t( #han$e by . per#ent in the %ame dire#ti(n.

a. ri%k-*ree rate

7/24/2019 FIN 350 Week 7 Quiz


b. %t(#k+% &a'ue

#. %t(#k+% %tandard de&iati(n

d. #(rre'ati(n #(e**i#ient

44. St(#k G ha% a '(er beta than St(#k H. !he market return *(r net m(nth i% epe#ted t( beeither per#ent2 J per#ent2 (r J per#ent ith an e8ua' pr(babi'ity (* ea#h %#enari(. !he

pr(babi'ity di%tributi(n (* St(#k G return% *(r net m(nth i%

a. the %ame a% that (* St(#k H.

b. m(re di%per%ed than that (* St(#k H.

#. 'e%% di%per%ed than that (* St(#k H.

d. zer(.

45. !he beta (* a %t(#k p(rt*('i( i% e8ua' t( a ei$hted a&era$e (* the

a. beta% (* %t(#k% in the p(rt*('i(.

b. beta% (* %t(#k% in the p(rt*('i(2 p'u% their #(rre'ati(n #(e**i#ient%.

#. %tandard de&iati(n% (* %t(#k% in the p(rt*('i(.

d. #(rre'ati(n #(e**i#ient% beteen %t(#k% in the p(rt*('i(.

46. ;a'ue at ri%k e%timate% the )))) a parti#u'ar in&e%tment *(r a %pe#i*ied #(n*iden#e 'e&e'.

a. beta (*

b. ri%k-*ree rate (*

#. 'ar$e%t epe#ted '(%% t(

d. %tandard de&iati(n (*

7/24/2019 FIN 350 Week 7 Quiz


47. %t(#k ha% a %tandard de&iati(n (* dai'y return% (* per#ent. It ant% t( determine the'(er b(undary (* it% pr(babi'ity di%tributi(n (* return%2 ba%ed (n .65 %tandard de&iati(n%*r(m the epe#ted (ut#(me. !he %t(#k+% epe#ted dai'y return i% . per#ent. !he '(er

b(undary i%

a. .45 per#ent.

b. .5 per#ent.

#. 0 per#ent.

d. .65 per#ent.

4. %t(#k ha% a %tandard de&iati(n (* dai'y return% (* 3 per#ent. It ant% t( determine the'(er b(undary (* it% pr(babi'ity di%tributi(n (* return%2 ba%ed (n .65 %tandard de&iati(n%*r(m the epe#ted (ut#(me. !he %t(#k+% epe#ted dai'y return i% . per#ent. !he '(er

b(undary i%

a. .65 per#ent.

b. 3.00 per#ent.

#. 4.5 per#ent.

d. 5.05 per#ent.

4<. Whi#h (* the *(''(in$ i% n(t #(mm(n'y u%ed a% the e%timate (* a %t(#k+% &('ati'ityB

a. the e%timate (* it% %tandard de&iati(n (* return% (&er a re#ent peri(d

b. the trend (* hi%t(ri#a' %tandard de&iati(n% (* return% (&er re#ent peri(d%

#. the imp'ied &('ati'ity deri&ed *r(m an (pti(n pri#in$ m(de'd. the e%timate (* it% (pti(n premium deri&ed *r(m an (pti(n pri#in$ m(de'

50. !he #redit #ri%i% #au%ed ma9(r pr(b'em% in the m(rt$a$e market but had n( impa#t (n the%t(#k market.a. !rue

b. Fa'%e

7/24/2019 FIN 350 Week 7 Quiz


5. When ne in*(rmati(n %u$$e%t% that a *irm i'' eperien#e '(er #a%h *'(% than pre&i(u%'y anti#ipated (r '(er ri%k2 in&e%t(r% i'' re&a'ue the #(rre%p(ndin$ %t(#kd(nard.a. !rue

b. Fa'%e

5. re'ati&e'y %imp'e meth(d (* &a'uin$ a %t(#k i% t( app'y the mean pri#e-earnin$%

rati( (* a'' pub'i#'y traded #(mpetit(r% in the re%pe#ti&e indu%try t( the *irm+% epe#tedearnin$% *(r the year.a. !rue

b. Fa'%e

53. Whi'e the pre&i(u% year+% earnin$% are (*ten u%ed a% a ba%e *(r *(re#a%tin$ *uture earnin$%2

the re#ent year+% earnin$% d( n(t a'ay% pr(&ide an a##urate *(re#a%t (* the *uture.a. !rue b. Fa'%e

54. I* in&e%t(r% a$ree (n a *irm+% *(re#a%ted earnin$%2 they i'' deri&e the %ame &a'ue *(r that*irm u%in$ the meth(d t( &a'ue the *irm+% %t(#k.a. !rue

b. Fa'%e

55. !he di&idend di%#(unt m(de' %tate% that the pri#e (* a %t(#k %h(u'd re*'e#t the pre%ent&a'ue (* the %t(#k+% *uture di&idend%.a. !rue

b. Fa'%e

7/24/2019 FIN 350 Week 7 Quiz


56. !he di&idend di%#(unt m(de' #an be adapted t( a%%e%% the &a'ue (* any *irm2 e&en th(%ethat retain m(%t (r a'' (* their earnin$%.a. !rue

b. Fa'%e

57. F(r *irm% that d( n(t pay di&idend%2 the *ree #a%h *'( m(de' may be m(re %uitab'e thanthe di&idend di%#(unt m(de'.a. !rue

b. Fa'%e

5. !he #apita' a%%et pri#in$ m(de' => i% ba%ed (n the premi%e that the (n'y imp(rtantri%k (* a *irm i% un%y%temati# ri%k.a. !rue

b. Fa'%e

5<. !he prime rate i% #(mm(n'y u%ed a% a pr(y *(r the ri%k-*ree rate in the #apita' a%%et pri#in$ m(de' =>.a. !rue

b. Fa'%e

60. %t(#k ith a beta (* .3 mean% that *(r e&ery per#ent #han$e in the market (&era''2 the%t(#k tend% t( #han$e by .3 per#ent in the %ame dire#ti(n.a. !rue

b. Fa'%e

6. St(#k% that ha&e re'ati&e'y 'itt'e tradin$ are n(rma''y %ub9e#t t( 'e%% pri#e &('ati'ity.

a. !rue b. Fa'%e

7/24/2019 FIN 350 Week 7 Quiz


6. *irm+% %t(#k pri#e i% a**e#ted n(t (n'y by ma#r(e#(n(mi# and market #(nditi(n% but a'%( by *irm %pe#i*i# #(nditi(n%.a. !rue

b. Fa'%e

63. St(#k repur#ha%e% are #(mm(n'y &ieed a% an un*a&(rab'e %i$na' ab(ut the *irm.a. !rue

b. Fa'%e

64. !he main %(ur#e (* un#ertainty in #(mputin$ the return (* a %t(#k i% the di&idend t( bere#ei&ed net year.a. !rue

b. Fa'%e

65. %t(#k p(rt*('i( ha% m(re &('ati'ity hen it% indi&idua' %t(#k return% are un#(rre'ated.a. !rue

b. Fa'%e

66. 1eta %er&e% a% a mea%ure (* ri%k be#au%e it #an be u%ed t( deri&e a pr(babi'ity di%tributi(n(* return% ba%ed (n a %et (* market return%.a. !rue

b. Fa'%e

67. !he &a'ue-at-ri%k meth(d i% intended t( arn in&e%t(r% ab(ut the p(tentia' maimum '(%%that #(u'd (##ur.

7/24/2019 FIN 350 Week 7 Quiz


a. !rue b. Fa'%e

6. Ke$ardin$ the &a'ue-at-ri%k meth(d2 the %ame meth(d% u%ed t( deri&e the maimumepe#ted '(%% (* (ne %t(#k #an be app'ied t( deri&e the maimum epe#ted '(%% (* a %t(#k

p(rt*('i( *(r a $i&en #(n*iden#e 'e&e'.a. !rue

b. Fa'%e

6<. (rt*('i( mana$er% h( m(nit(r %y%temati# ri%k rather than t(ta' ri%k are m(re #(n#ernedab(ut %t(#k &('ati'ity than ab(ut beta.a. !rue

b. Fa'%e

70. Ke$ardin$ the imp'ied %tandard de&iati(n2 by p'u$$in$ in the a#tua' (pti(n premium paid by in&e%t(r% *(r a %pe#i*i# %t(#k in the (pti(n-pri#in$ m(de'2 it i% p(%%ib'e t( deri&e theanti#ipated &('ati'ity 'e&e'.a. !rue

b. Fa'%e

7. p(rt*('i(+% beta i% the %um (* the indi&idua' *(re#a%ted beta%2 ei$hted by the market

&a'ue (* ea#h %t(#k.a. !rue

b. Fa'%e

7. I* beta i% th(u$ht t( be the appr(priate mea%ure (* ri%k2 a %t(#k+% ri%k-ad9u%ted return%%h(u'd be determined by the Sharpe inde.a. !rue

b. Fa'%e

7/24/2019 FIN 350 Week 7 Quiz


73. !he !reyn(r inde i% %imi'ar t( the Sharpe inde2 e#ept that i% u%e% beta rather than

%tandard de&iati(n t( mea%ure the %t(#k+% ri%k.a. !rue

b. Fa'%e

74. Fabrizi(2 In#. i% epe#ted t( $enerate earnin$% (* .50 per %hare thi% year. I* the meanrati( (* %hare pri#e t( epe#ted earnin$% (* #(mpetit(r% in the %ame indu%try i% 02 then the%t(#k pri#e per %hare i% )))).

a. 3.33

b. 3.00

#. 0.00

d. 30.00


75. Whi#h (* the *(''(in$ i% n(t a rea%(n the rati( meth(d may re%u't in an ina##urate&a'uati(n *(r a *irmB

a. p(tentia' err(r% in the *(re#a%t (* the *irm+% beta

b. p(tentia' err(r% in the *(re#a%t (* the *irm+% *uture earnin$%

#. p(tentia' err(r% in the #h(i#e (* the indu%try #(mp(%ite u%ed t( deri&e the rati(

d. '' (* the ab(&e are rea%(n% the rati( meth(d may re%u't in an ina##urate &a'uati(n

*(r a *irm.

76. !he )))) i% n(t a mea%ure (* a %t(#k+% ri%k.

a. %t(#k+% pri#e &('ati'ity

b. %t(#k+% return

#. %t(#k+% beta

7/24/2019 FIN 350 Week 7 Quiz


d. &a'ue-at-ri%k meth(d

e. '' (* the ab(&e are mea%ure% (* a %t(#k+% ri%k.

77. I* the %tandard de&iati(n (* a %t(#k+% return% (&er the 'a%t 8uarter% i% 4 per#ent2 and i*there i% n( per#ei&ed #han$e in &('ati'ity2 there i% a )))) per#ent pr(babi'ity that the%t(#k+% return% i'' be ithin )))) per#enta$e p(int% (* the epe#ted (ut#(me.

a. 6, 4

b. 6,

#. <5,

d. <5, 6


7. !he 'imitati(n% (* the di&idend di%#(unt m(de' are m(%t pr(n(un#ed *(r a *irm that

a. ha% a hi$h beta.

b. ha% hi$h epe#ted *uture earnin$%.

#. di%tribute% m(%t (* it% earnin$% a% di&idend%.

d. retain% a'' (* it% earnin$%.


7<. Whi#h (* the *(''(in$ i% in#(rre#t re$ardin$ the #apita' a%%et pri#in$ m(de' =>B

a. It i% %(metime% u%ed t( e%timate the re8uired rate (* return *(r any *irm ith pub'i#'ytraded %t(#k.

b. It i% ba%ed (n the premi%e that the (n'y imp(rtant ri%k (* a *irm i% %y%temati# ri%k.

#. It i% #(n#erned ith un%y%temati# ri%k.

d. '' (* the ab(&e are true.

7/24/2019 FIN 350 Week 7 Quiz


0. !he )))) i% n(t a *a#t(r u%ed in the #apita' a%%et pri#in$ m(de' => t( deri&e thereturn (* an a%%et.

a. pre&ai'in$ ri%k-*ree rate

b. di&idend $r(th rate

#. market return

d. #(&arian#e beteen the a%%et+% return% and market return%

e. '' (* the ab(&e are *a#t(r% u%ed in the =>.

. Steam =(rp. ha% a beta (* .5. !he pre&ai'in$ ri%k-*ree rate i% 5 per#ent and the annua'market return in re#ent year% ha% been per#ent. 1a%ed (n thi% in*(rmati(n2 the re8uiredrate (* return (n Steam =(rp. %t(#k i% )))) per#ent.

a. .5

b. 6.5

#. 6.5

d. 4.0


. Whi#h (* the *(''(in$ i% n(t a type (* *a#t(r that dri&e% %t(#k pri#e%2 a##(rdin$ t( y(urtetB

a. e#(n(mi# *a#t(r% b. market-re'ated *a#t(r%

#. *irm-%pe#i*i# *a#t(r%

d. '' (* the ab(&e are *a#t(r% that a**e#t %t(#k pri#e%.

3. !he $enera' m((d (* in&e%t(r% repre%ent%:

7/24/2019 FIN 350 Week 7 Quiz


a. in&e%t(r %entiment.

b. beta.

#. %y%temati# ri%k.

d. un%y%temati# ri%k.

4. )))) i% are n(t a *irm-%pe#i*i# *a#t(r% that a**e#t% %t(#k pri#e%.

a. #han$e rate%

b. Li&idend p('i#y #han$e%

#. St(#k (**erin$% and repur#ha%e%

d. arnin$% %urpri%e%

e. '' (* the ab(&e are *irm-%pe#i*i# *a#t(r% that a**e#t %t(#k pri#e%.

5. !he @.S. $(&ernmentM% bud$et de*i#it ha% a %i$ni*i#ant impa#t (n the b(nd market but d(e%n(t a**e#t the %t(#k market.a. !rue

b. Fa'%e

6. In&e%t(r% #an a&(id un%y%temati# ri%k by:

a. u%in$ the #apita' a%%et pri#in$ m(de'.

b. in&e%tin$ in %t(#k% ith '( rati(%.

#. h('din$ di&er%i*ied p(rt*('i(%.

d. u%in$ the *ree #a%h *'( m(de'.

7. !he market ri%k premium i%:

a. the yie'd (n ne'y i%%ued !rea%ury b(nd%.

7/24/2019 FIN 350 Week 7 Quiz


b. the return (* the market in e#e%% (* the ri%k-*ree rate.

#. the #(&arian#e beteen the ri%k-*ree rate and the return (* the market.

d. the return (* the market in e#e%% (* epe#ted #a%h *'(%.

. !he market ri%k premium i% %tab'e (&er time and i% n(t a**e#ted by %t(#k market#(nditi(n%.a. !rue

b. Fa'%e

<. ('din$ (ther *a#t(r% #(n%tant2 an in#rea%e in the #apita' $ain% ta rate i'':

a. ha&e m(re e**e#t (n the &a'uati(n (* di&idend-payin$ %t(#k% than (n %t(#k% ith hi$h$r(th pr(%pe#t%.

b. ha&e 'e%% e**e#t (n the &a'uati(n (* di&idend-payin$ %t(#k% than (n %t(#k% ith hi$h$r(th pr(%pe#t%.

#. ha&e n( e**e#t (n the &a'uati(n% (* %t(#k%.

d. ha&e the %ame e**e#t (n the &a'uati(n (* di&idend-payin$ %t(#k% and %t(#k% ith hi$h$r(th pr(%pe#t%.

<0. !he ;IG &('ati'ity inde indi#ate% the &('ati'ity (* the b(nd market in $enera'.a. !rue

b. Fa'%e

<. ('din$ (ther *a#t(r% #(n%tant2 a %t(#k p(rt*('i( ha% m(re &('ati'ity hen it% indi&idua'%t(#k &('ati'itie% are )))))))) and it% indi&idua' %t(#k return% ha&e ))))))) #(rre'ati(n%.

a. hi$h, '(

b. '(, hi$h

#. '(, '(

7/24/2019 FIN 350 Week 7 Quiz


d. hi$h, hi$h

<. mer$in$ market %t(#k% tend t( ehibit a'' (* the *(''(in$ e#ept:

a. hi$h p('iti#a' ri%k.

b. hi$h e#han$e ri%k.

#. hi$h #(rre'ati(n ith %t(#k% (* m(re de&e'(ped #(untrie%.

d. hi$h &('ati'ity.

<3. &en th(u$h a *(rei$n %t(#k that appear% t( be (&er&a'ued in it% (n #(untry2 the %t(#kmay n(t $enerate a rea%(nab'e return *(r a @.S. in&e%t(r i* the #urren#y (* that #(untryappre#iate% a$ain%t the @.S. d(''ar.

a. !rue b. Fa'%e

<4. % a re%u't (* market inte$rati(n2 %t(#k market% in emer$in$ market% are 'ike'y t( be a%e**i#ient a% @.S. %t(#k market%.a. !rue

b. Fa'%e

Cha'ter (3)Financial Future %arket

. n )))) i% a %tandardized a$reement t( de'i&er (r re#ei&e a %pe#i*ied am(unt (* a%pe#i*ied *inan#ia' in%trument at a %pe#i*ied pri#e and date.

a. (pti(n #(ntra#t

b. br(kera$e #(ntra#t

#. *inan#ia' *uture% #(ntra#t

7/24/2019 FIN 350 Week 7 Quiz


d. mar$in #a''

. Intere%t rate *uture% are n(t a&ai'ab'e (n

a. !rea%ury b(nd%.

b. !rea%ury n(te%.

#. ur(d(''ar =L%.

d. the SO 500 inde.

3. )))) take p(%iti(n% in *uture% t( redu#e their ep(%ure t( *uture m(&ement% in intere%trate% (r %t(#k pri#e%.

a. ed$er%

b. Lay trader%

#. (%iti(n trader%

d. N(ne (* the ab(&e

4. )))) trade *uture% #(ntra#t% *(r their (n a##(unt.

a. =(mmi%%i(n br(ker%

b. F'((r br(ker%#. =(mmi%%i(n trader%

d. F'((r trader%

5. !he initia' mar$in (* a *uture% #(ntra#t i% typi#a''y beteen )))) per#ent (* a *uture%

#(ntra#t+% *u'' &a'ue.

7/24/2019 FIN 350 Week 7 Quiz


a. 0 and

b. 5 and

#. 5 and 40

d. 45 and 60

6. Future% e#han$e% take buy (r %e'' p(%iti(n% (n *uture% #(ntra#t%.a. !rue

b. Fa'%e

S!: LIS=.F>I.>[email protected]

7. I* the pri#e% (* !rea%ury b(nd% ))))2 the &a'ue (* an ei%tin$ !rea%ury b(nd *uture%#(ntra#t %h(u'd )))).

a. in#rea%e, be una**e#ted

b. de#rea%e, be una**e#ted

#. and 1

d. de#rea%e, de#rea%e

e. de#rea%e, in#rea%e

. %%ume that a !-bi'' *uture% #(ntra#t ith a *a#e &a'ue (* mi''i(n i% pur#ha%ed at a pri#e(* <5.00 per 00 *a#e &a'ue. t %ett'ement2 the pri#e (* !-bi''% i% <5.50. What i% the

di**eren#e beteen the %e''in$ and pur#ha%e pri#e (* the *uture% #(ntra#tBa. .50

b. 50

#. 500

d. 52000


7/24/2019 FIN 350 Week 7 Quiz


<. I* %pe#u'at(r% be'ie&e intere%t rate% i'' ))))2 they (u'd #(n%ider )))) a !-bi'' *uture%#(ntra#t t(day.

a. in#rea%e, %e''in$

b. in#rea%e, buyin$#. de#rea%e2 %e''in$

d. de#rea%e, pur#ha%in$ a #a'' (pti(n (n

0. Finan#ia' *uture% #(ntra#t% (n @.S. %e#uritie% are )))) by n([email protected]. *inan#ia' in%tituti(n%.

a. n(t a''(ed t( be traded

b. are rare'y de%ired

#. are #(mm(n'y traded

d. and 1

. %%ume that %pe#u'at(r% had pur#ha%ed a *uture% #(ntra#t at the be$innin$ (* the year. I*the pri#e (* a %e#urity repre%ented by a *uture% #(ntra#t )))) (&er the year2 then the%e%pe#u'at(r% (u'd 'ike'y ha&e pur#ha%ed the *uture% #(ntra#t *(r )))) than they #an %e'' it*(r.

a. in#rea%ed, m(re

b. de#rea%ed, 'e%%

#. remain% the %ame, m(re

d. in#rea%ed, 'e%%

. %%ume that a *uture% #(ntra#t (n !rea%ury b(nd% ith a *a#e &a'ue (* 002000 i% pur#ha%ed at <3-00. I* the %ame #(ntra#t i% 'ater %('d at <4-2 hat i% the $ain2 i$n(rin$tran%a#ti(n% #(%t%B

a. 202000

b.

7/24/2019 FIN 350 Week 7 Quiz


#. 200

d. 5265

e. 256.50

3. !he u%e (* *inan#ia' 'e&era$e

a. ma$ni*ie% the p(%iti&e return% (* *uture% #(ntra#t%.

b. ma$ni*ie% '(%%e% (* *uture% #(ntra#t%.

#. b(th and 1


4. ##(rdin$ t( the tet2 hen a *inan#ia' in%tituti(n %e''% *uture% #(ntra#t% (n %e#uritie% in(rder t( hed$e a$ain%t a #han$e in intere%t rate%2 thi% i% re*erred t( a%

a. a '(n$ hed$e.

b. a %h(rt hed$e.

#. a #'(%ed (ut p(%iti(n.

d. ba%i% tradin$.

5. *inan#ia' in%tituti(n that maintain% %(me !rea%ury b(nd h('din$% %e''% !rea%ury b(nd*uture% #(ntra#t%. I* intere%t rate% in#rea%e2 the market &a'ue (* the b(nd h('din$% i'' )))) and the p(%iti(n in *uture% #(ntra#t% i'' re%u't in a )))).

a. in#rea%e, $ain

b. in#rea%e, '(%%

#. de#rea%e, $ain

d. de#rea%e, '(%%

7/24/2019 FIN 350 Week 7 Quiz


6. !he ba%i% i% the

a. di**eren#e beteen the pri#e (* a %e#urity and the pri#e (* a *uture% #(ntra#t (n the%e#urity.

b. $ain (r '(%% *r(m hed$in$ ith *uture% #(ntra#t%.

#. di**eren#e beteen a *uture% #(ntra#t pri#e and the initia' dep(%it re8uired.

d. pri#e paid *(r a *uture% #(ntra#t a*ter a##(untin$ *(r tran%a#ti(n% #(%t%.

e. pri#e paid *(r an (pti(n #(ntra#t.

7. !he pr(*it% (* a *inan#ia' in%tituti(n ith intere%t-rate %en%iti&e 'iabi'itie% and intere%t rate-in%en%iti&e a%%et% are )))) ith hed$in$ than ith(ut hed$in$ i* intere%t rate% de#rea%e.

a. hi$her

b. the %ame

#. '(er

d. hi$her (r the %ame

. %%ume that a bank (btain% m(%t (* it% *und% *r(m 'ar$e =L% ith a (ne-year maturity. It%a%%et% are in the *(rm (* '(an% ith rate% that ad9u%t e&ery %i m(nth%. !he bank (u'd be

)))) a**e#ted i* intere%t rate% in#rea%e. !( partia''y hed$e it% p(%iti(n2 it #(u'd )))) *uture%#(ntra#t%.

a. ad&er%e'y, pur#ha%e

b. *a&(rab'y, %e''#. *a&(rab'y, pur#ha%e

d. ad&er%e'y, %e''

<. ##(rdin$ t( the tet2 a *uture% #(ntra#t (n (ne *inan#ia' in%trument t( pr(te#t a p(%iti(n in

a di**erent *inan#ia' in%trument i% kn(n a%

a. #r(%%-hed$in$.

7/24/2019 FIN 350 Week 7 Quiz


b. rati( hed$in$.

#. ba%i% hed$in$.

d. 'i8uid hed$in$.

0. !he e**e#ti&ene%% (* a #r(%%-hed$e depend% (n the de$ree (* #(rre'ati(n beteen themarket &a'ue% (* the t( *inan#ia' in%trument%.a. !rue

b. Fa'%e

. I* a *uture% #(ntra#t i% m(re &('ati'e than the p(rt*('i( &a'ue2 the am(unt (* prin#ipa'repre%ented by the *uture% #(ntra#t% t( hed$e the p(rt*('i( i% )))) the market &a'ue (* the%e#uritie% t( be hed$ed.

a. %ma''er than

b. $reater than

#. e8ua' t(

d. 1 and = are b(th p(%%ib'e

. In #r(%%-hed$in$2 i* the *uture% #(ntra#t &a'ue i% )))) &('ati'e than the p(rt*('i( &a'ue2hed$in$ i'' re8uire a )))) am(unt (* prin#ipa' repre%ented by the *uture% #(ntra#t%.

a. 'e%%, $reater

b. m(re, $reater

#. m(re, %ma''er


3. >uni#ipa' 1(nd Inde >1I *uture%

7/24/2019 FIN 350 Week 7 Quiz


a. in&('&e a phy%i#a' e#han$e (* b(nd%.

b. are ba%ed (n a !rea%ury b(nd inde.

#. are ba%ed (n a#ti&e'y traded #(rp(rate b(nd%.

d. are %ett'ed in #a%h.

4. Sy%temi# ri%k re*'e#t% the ri%k that a parti#u'ar e&ent #(u'd

a. #au%e '(%%e% at a *irm due t( inade8uate mana$ement #(ntr('.

b. %pread ad&er%e e**e#t% am(n$ %e&era' *irm% (r am(n$ *inan#ia' market%.

#. #au%e a '(%% in &a'ue due t( market #(nditi(n%.

d. ha&e a 'ar$er e**e#t (n the *uture% p(%iti(n than (n the p(%iti(n bein$ hed$ed.

5. %a&in$% and '(an a%%(#iati(n ha% '(n$-term *ied-rate m(rt$a$e% *inan#ed by %h(rt-term*und%. It hed$e% by %e''in$ !rea%ury b(nd *uture%. I* intere%t rate% de#'ine2 and many

m(rt$a$e% are prepaid

a. the $ain (n the *uture% #(ntra#t% (**%et% the '(%% (n the m(rt$a$e%.

b. the $ain (n the m(rt$a$e% (**%et% the '(%% (n the *uture% #(ntra#t%.

#. the $ain (n the *uture% #(ntra#t% m(re than (**%et% any un*a&(rab'e e**e#t% (nm(rt$a$e%.

d. a '(%% (n the *uture% #(ntra#t% m(re than (**%et% the *a&(rab'e e**e#t (n the m(rt$a$e p(rt*('i(.

6. I* a *inan#ia' in%tituti(n epe#t% that the market &a'ue (* it% muni#ipa' b(nd% i'' de#'ine be#au%e (* e#(n(mi# #(nditi(n%2 it #(u'd hed$e it% p(%iti(n by )))) *uture% #(ntra#t% (n )))).

a. pur#ha%in$, !rea%ury b(nd%

b. pur#ha%in$, the SO 500 Inde

#. pur#ha%in$, a >uni#ipa' 1(nd Inded. %e''in$, a >uni#ipa' 1(nd Inde

7/24/2019 FIN 350 Week 7 Quiz


7. !he net $ain (r '(%% (n a *uture% #(ntra#t *(r a %t(#k inde that i% n(t #'(%ed (ut i% ba%ed(n the di**eren#e beteen the *uture% pri#e hen the initia' p(%iti(n a% #reated and the*uture% pri#e at

a. the %ett'ement date.

b. the date at hi#h the *uture% pri#e rea#he% it% maimum.

#. the date at hi#h the *uture% pri#e rea#he% it% minimum.

d. the date three m(nth% bey(nd the date hen the initia' p(%iti(n a% taken.

. !he &a'ue (* an SO 500 *uture% #(ntra#t i% 500 time% the inde. %%ume the *uture% pri#e (n the SO 500 inde i% 6 at the time (* pur#ha%e. I* the inde pri#e i% 6<hen the p(%iti(n i% #'(%ed (ut2 the $ain i%

a. 700.

b. 72000.

#. 32<0.

d. 320.

e. 32500.

<. %%ume that a %t(#k mutua' *und u%e% %t(#k inde *uture% a% it #(ndu#t% dynami# a%%eta''(#ati(n. !hi% mean% that the mutua' *und

a. 'i8uidate% it% %t(#k% hene&er it epe#t% a market d(nturn.

b. maintain% a #(n%tant buy p(%iti(n in %t(#k inde *uture%.

#. maintain% a #(n%tant %e'' p(%iti(n in %t(#k inde *uture%.


7/24/2019 FIN 350 Week 7 Quiz


30. =(mpanie% ith internati(na' trade #an hed$e )))) by )))) #urren#y *uture%.

a. payab'e%, %e''in$

b. re#ei&ab'e%, buyin$

#. payab'e%, buyin$

d. and 1

e. 1 and =

3. %%ume that #(rp(rate b(nd p(rt*('i( mana$er% are #(n#erned ab(ut the p(%%ibi'ity (*many b(nd de*au't% re%u'tin$ *r(m a *uture re#e%%i(n. %h(rt p(%iti(n in !rea%ury b(nd*uture% )))) an e**e#ti&e hed$e a$ain%t the de*au't ri%k. %h(rt p(%iti(n in !rea%ury bi''*uture% )))) an e**e#ti&e hed$e a$ain%t the de*au't ri%k.

a. (u'd be, (u'd be

b. (u'd be, (u'd n(t be

#. (u'd n(t be, (u'd n(t be

d. (u'd n(t be, (u'd be

3. Whi#h (* the *(''(in$ %tatement% i% in#(rre#t ith re%pe#t t( #r(%%-hed$in$B

a. &en hen the *uture% #(ntra#t i% hi$h'y #(rre'ated ith the p(rt*('i( bein$ hed$ed2the &a'ue (* the *uture% #(ntra#t may #han$e by a hi$her (r '(er per#enta$e than the

p(rt*('i(+% market &a'ue.

b. I* the *uture% #(ntra#t &a'ue i% m(re &('ati'e than the p(rt*('i( &a'ue2 hed$in$ i''

re8uire a $reater am(unt (* prin#ipa' repre%ented by the *uture% #(ntra#t%.#. !he e**e#ti&ene%% (* a #r(%%-hed$e depend% (n the de$ree (* #(rre'ati(n beteen the

market &a'ue% (* the t( *inan#ia' in%trument%.

d. I* the pri#e (* the under'yin$ %e#urity (* the *uture% #(ntra#t m(&e% #'(%e'y in tandemith the %e#urity hed$ed2 the *uture% #(ntra#t #an pr(&ide an e**e#ti&e hed$e.

e. '' (* the ab(&e are #(rre#t ith re%pe#t t( #r(%%-hed$in$.

7/24/2019 FIN 350 Week 7 Quiz


33. )))) ri%k i% the ri%k that the p(%iti(n bein$ hed$ed by a *uture% #(ntra#t i% n(t a**e#ted inthe %ame manner a% the in%trument under'yin$ the *uture% #(ntra#t.

a. >arket

b. i8uidity

#. =redit

d. 1a%i%

e. N(ne (* the ab(&e

34. !radin$ re%tri#ti(n% imp(%ed (n %pe#i*i# %t(#k% (r %t(#k indi#e% are re*erred t( a%

a. inde bu%ter%.

b. inde (pti(n%.

#. #ir#uit breaker%.

d. pr(te#ti&e #(&enant%.

35. Finan#ia' 'e&era$e2 hen u%ed in a%%(#iati(n ith a *uture% #(ntra#t2 )))) the p(%iti&ereturn% and )))) '(%%e%.

a. ma$ni*ie%, redu#e%

b. redu#e%, ma$ni*ie%

#. ma$ni*ie%, ma$ni*ie%

d. redu#e%, redu#e%

36. =urren#y *uture% may be pur#ha%ed t( hed$e )))) (r t( #apita'ize (n the epe#ted )))) (*that #urren#y a$ain%t the d(''ar.

a. re#ei&ab'e%, a ppre#iati(n

b. re#ei&ab'e%, depre#iati(n

#. payab'e%, depre#iati(n

d. payab'e%, appre#iati(n

7/24/2019 FIN 350 Week 7 Quiz


37. !he ri%k that the p(%iti(n bein$ hed$ed by a *uture% p(%iti(n i% n(t a**e#ted in the %amemanner a% the in%trument under'yin$ the *inan#ia' *uture% #(ntra#t2 i% re*erred t( a%

a. market ri%k.

b. 'i8uidity ri%k.

#. de*au't ri%k.

d. ba%i% ri%k.

3. Lynami# a%%et a''(#ati(n in&('&e% the %it#hin$ beteen ri%ky and '(-ri%k in&e%tment% by in%tituti(na' in&e%t(r% (&er time in re%p(n%e t( #han$in$ epe#tati(n%.a. !rue

b. Fa'%e

3<. !he pri#e% (* %t(#k inde *uture%

a. are a'ay% the %ame a% the pri#e% (* the %t(#k% repre%entin$ the inde.

b. are a'ay% a 'itt'e ab(&e the pri#e% (* the %t(#k% repre%entin$ the inde.

#. are a'ay% a 'itt'e be'( the pri#e% (* the %t(#k% repre%entin$ the inde.


40. !he a#ti(n% (* numer(u% in%tituti(na' in&e%t(r% t( %e'' %t(#k inde *uture% in%tead (* %e''in$%t(#k% t( prepare *(r a market de#'ine (u'd 'ike'y #au%e the inde *uture% pri#e t( be

a. e8ua' t( the pre&ai'in$ %t(#k pri#e%.

b. be'( the pre&ai'in$ %t(#k pri#e%.

#. ab(&e the pre&ai'in$ %t(#k pri#e%.

d. ne$ati&e.

7/24/2019 FIN 350 Week 7 Quiz


4. Spe#u'at(r% in *uture% #(ntra#t% that n(rma''y #'(%e (ut their *uture% p(%iti(n% (n the %ameday that the p(%iti(n% ere initiated are re*erred t( a%

a. day trader%.

b. hed$er%.

#. #'(%ed-end trader%.

d. p(%iti(n trader%.

4. Spe#u'at(r% in *uture% #(ntra#t% that n(rma''y maintain the *uture% p(%iti(n that theyinitiate *(r etended peri(d% (* time %u#h a% eek% (r m(nth% are re*erred t( a%

a. day trader%.

b. hed$er%.

#. #'(%ed-end trader%.

d. p(%iti(n trader%.

43. Whi#h (* the *(''(in$ i% in#(rre#t re$ardin$ (r$anized e#han$e% tradin$ *inan#ia'*uture% #(ntra#t%B

a. Pr$anized e#han$e% e%tab'i%h and en*(r#e ru'e% *(r the tradin$ (* *inan#ia' *uture%

#(ntra#t%. b. Pr$anized e#han$e% en%ure that the %e''er (* the *uture% #(ntra#t a'ay% de'i&er% the

%e#uritie% #(&ered by the #(ntra#t2 hether the #(ntra#t a% %ett'ed pri(r t( the%ett'ement date (r n(t.

#. Pr$anized e#han$e% #'ear2 %ett'e2 and $uarantee a'' tran%a#ti(n% that (##ur (n theire#han$e%.

d. !he (perati(n% (* *inan#ia' *uture% e#han$e% are re$u'ated by the =(mm(dity Future%!radin$ =(mmi%%i(n =F!=.

e. '' (* the ab(&e are #(rre#t.

7/24/2019 FIN 350 Week 7 Quiz


44. >ar#ia buy% an SO 500 *uture% #(ntra#t ith a September %ett'ement date hen the inde

i% 2750. 1y the %ett'ement date2 the SO 500 inde *a''% t( 2400. !he return (n >ar#ia+% p(%iti(n in the SO 500 *uture% #(ntra#t i% )))) per#ent.

a. 0

b. 0

#. 5

d. 0

e. 0

45. aura %e''% an SO 500 *uture% #(ntra#t ith a September %ett'ement date hen the indei% 2750. 1y the %ett'ement date2 the SO 500 inde *a''% t( 2400. !he return (n aura+%

p(%iti(n in the SO 500 *uture% #(ntra#t i% )))) per#ent.

a. 0

b. 0

#. 5

d. 0

e. 0

46. %%ume a #(rp(rati(n i% re#ei&in$ a 'ar$e am(unt (* *und% in the near *uture. !he #(mpany

p'an% t( u%e the *und% t( pur#ha%e muni#ipa' b(nd%. '%( a%%ume that the #(mpany i%#(n#erned that intere%t rate% de#rea%e be*(re the pur#ha%e date2 hi#h (u'd make themuni#ipa' b(nd% m(re epen%i&e. In (rder t( hed$e a$ain%t thi% p(%%ibi'ity2 the #(mpany%h(u'd )))) >1I *uture% #(ntra#t%. I* intere%t rate% de#rea%e2 the *uture% #(ntra#t i''$enerate a )))).

a. %e'', '(%%

b. pur#ha%e, $ain

#. pur#ha%e, '(%%

d. %e'', $ain


7/24/2019 FIN 350 Week 7 Quiz


47. I* there are )))) trader% ith buy (**er% than %e'' (**er% *(r a parti#u'ar #(ntra#t2 the*uture% pri#e i'' )))) unti' thi% imba'an#e i% rem(&ed.

a. m(re, de#rea%e

b. m(re, ri%e

#. *eer, ri%e


4. Whi#h (* the *(''(in$ %tatement% i% in#(rre#tB

a. =ir#uit breaker% are tradin$ re%tri#ti(n% imp(%ed (n %pe#i*i# %t(#k% (r %t(#k indee%.

b. =ir#uit breaker% $uarantee that pri#e% i'' turn upard.

#. =ir#uit breaker% may be ab'e t( pre&ent 'ar$e de#'ine% in pri#e% that (u'd beattributed t( pani# %e''in$ rather than t( *undamenta' *(r#e%.

d. =ir#uit breaker% may a''( in&e%t(r% t( determine hether #ir#u'atin$ rum(r% are true.

4<. )))) ri%k i% the ri%k (* '(%%e% a% a re%u't (* inade8uate mana$ement (r #(ntr('%.

a. 1a%i%

b. Sy%temi#

#. Pperati(na'

d. repayment

50. Finan#ia' *uture% #(ntra#t% (n %t(#k indee% are re*erred t( a% intere%t rate *uture%.

a. !rue b. Fa'%e

7/24/2019 FIN 350 Week 7 Quiz


5. Finan#ia' *uture% #(ntra#t% are rare'y %('d (&er the #(unter.a. !rue

b. Fa'%e

5. 1r(ker% #(mm(n'y re8uire mar$in dep(%it% *r(m their #u%t(mer% ab(&e th(%e re8uired bythe e#han$e%.a. !rue

b. Fa'%e

53. ur#ha%er% (* *inan#ia' *uture% #(ntra#t% u%ua''y kn( h( the %e''er% are2 and &i#e &er%a.a. !rue

b. Fa'%e

54. !he *uture% pri#e i% main'y a *un#ti(n (* the pre&ai'in$ pri#e (* the under'yin$ %e#urity p'u% an epe#ted ad9u%tment in that pri#e by the %ett'ement date.a. !rue

b. Fa'%e

55. *inan#ia' in%tituti(n that hed$e% ith intere%t rate *uture% i% 'e%% %en%iti&e t( e#(n(mi#e&ent% than an in%tituti(n that d(e% n(t hed$e.a. !rue

b. Fa'%e

56. b(nd inde *uture% #(ntra#t a''(% *(r the buyin$2 but n(t the %e''in$2 (* a b(nd inde*(r a %pe#i*ied pri#e at a %pe#i*ied date.

7/24/2019 FIN 350 Week 7 Quiz


a. !rue b. Fa'%e

57. >arket parti#ipant% h( epe#t the %t(#k market t( per*(rm p((r'y be*(re the %ett'ementdate may #(n%ider %e''in$ SO 500 inde *uture%.a. !rue

b. Fa'%e

5. St(#k inde *uture% #ann(t be #'(%ed (ut be*(re the %ett'ement date.a. !rue

b. Fa'%e

5<. !he &a'ue (* a %t(#k inde *uture% #(ntra#t ha% 'itt'e #(rre'ati(n ith the &a'ue (* theunder'yin$ %t(#k inde.

a. !rue b. Fa'%e

60. Sin#e %t(#k inde *uture% pri#e% are primari'y dri&en by m(&ement% in the #(rre%p(ndin$%t(#k indee%2 parti#ipant% in %t(#k inde *uture% m(nit(r indi#at(r% that may %i$na'#han$e% in the %t(#k indee%.a. !rue

b. Fa'%e

6. !he pri#e (* %t(#k inde *uture% may re*'e#t in&e%t(r epe#tati(n% ab(ut the market m(rerapid'y than %t(#k pri#e%.a. !rue

b. Fa'%e

7/24/2019 FIN 350 Week 7 Quiz


6. Finan#ia' *uture% #(ntra#t% (n @.S. %e#uritie% are #(mm(n'y traded by n([email protected]. *inan#ia'in%tituti(n% that maintain h('din$% (* @.S. %e#uritie%.a. !rue

b. Fa'%e

63. ur#ha%er% (* #urren#y *uture% #(ntra#t% are re8uired t( h('d the #(ntra#t unti' the%ett'ement date and a##ept de'i&ery (* the *(rei$n #urren#y at that time.a. !rue

b. Fa'%e

64. Whi#h (* the *(''(in$ %tatement% i% in#(rre#t re$ardin$ (r$anized *uture% e#han$e%B

a. Pr$anized e#han$e% e%tab'i%h and en*(r#e ru'e% *(r the tradin$ (* *inan#ia' *uture%#(ntra#t%.

b. Pr$anized e#han$e% %er&e a% market maker% *(r *uture% #(ntra#t% by takin$ p(%iti(n%in *uture%.

#. Pr$anized e#han$e% #'ear2 %ett'e2 and $uarantee a'' tran%a#ti(n% that (##ur (n theire#han$e%.

d. !he (perati(n% (* *inan#ia' *uture% e#han$e% are re$u'ated by the =(mm(dity Future%!radin$ =(mmi%%i(n =F!=.

e. '' (* the ab(&e are #(rre#t.

65. St(#k inde *uture% are pri#ed )))) than the %t(#k inde it%e'*.

a. hi$her

b. '(er

#. either hi$her (r '(er


7/24/2019 FIN 350 Week 7 Quiz


66. n unepe#ted )))) in the #(n%umer pri#e inde tend% t( #reate epe#tati(n% (* ))))intere%t rate% and p'a#e% )))) pre%%ure (n !rea%ury b(nd *uture% pri#e%.

a. in#rea%e, hi$her, d(nard

b. in#rea%e, '(er, d(nard#. in#rea%e, hi$her, upard

d. de#rea%e, hi$her, d(nard


67. 1i'' 1aher2 a pri&ate in&e%t(r2 pur#ha%ed a *uture% #(ntra#t (n !rea%ury b(nd% at a pri#e (*0-. !( m(nth% 'ater2 1aher %e''% the %ame *uture% #(ntra#t in (rder t( #'(%e (ut the

p(%iti(n. t that time2 the *uture% #(ntra#t %pe#i*ie% 03-5. What i% 1aher+% n(mina' pr(*itB !he par &a'ue (* the *uture% #(ntra#t i% 002000.

a. 2030.00, pr(*it

b. 2030.00, '(%%

#. 20<3.75, pr(*it

d. 20<3.75, '(%%


6. ='arke p'an% t( %ati%*y #a%h need% in nine m(nth% by %e''in$ it% !rea%ury b(nd h('din$% *(r4 mi''i(n. (e&er2 ='arke i% #(n#erned that intere%t rate% mi$ht in#rea%e (&er the netthree m(nth%. !( hed$e a$ain%t thi% p(%%ibi'ity2 ='arke p'an% t( %e'' !rea%ury b(nd *uture%.!hu%2 ='arke %e''% )))) *uture% #(ntra#t *(r a pri#e (* <<-. %%umin$ that the a#tua'

pri#e (* the *uture% #(ntra#t de#'ined t( <7-02 ='arke (u'd make a )))) (* )))) *r(m#'(%in$ (ut the *uture% p(%iti(n.

a. 40, pr(*it, 76200

b. 40, '(%%, 76200

#. 50, pr(*it, 702000

d. 40, pr(*it, 702000


7/24/2019 FIN 350 Week 7 Quiz


6<. ))))))))) take p(%iti(n% in *inan#ia' *uture% t( redu#e their ep(%ure t( *uturem(&ement% in intere%t rate% (r %t(#k pri#e%, )))))))) #(mm(n'y take the (pp(%ite

p(%iti(n and thu% %er&e a% #(unterpartie% (n many tran%a#ti(n%.

a. Spe#u'at(r%, hed$er%

b. ed$er%, %pe#u'at(r%

#. rbitra$eur%, %pe#u'at(r%

d. ed$er%, arbitra$eur%

70. S(me %pe#ia'ized *uture% #(ntra#t% are %('d (&er the #(unter2 herea% %tandardized*inan#ia' *uture% #(ntra#t% are traded (n e#han$e%.

a. !rue b. Fa'%e

7. *inan#ia' in%tituti(n that i%he% t( redu#e it% ep(%ure t( the p(%%ibi'ity (* de#'inin$intere%t rate% mi$ht u%e:

a. a '(n$ hed$e.

b. a %h(rt hed$e.

#. a day hed$e.

d. inde arbitra$e.

7. Sett'ement (* %t(#k inde *uture% #(ntra#t% (##ur% thr(u$h de'i&ery (* the under'yin$%e#uritie%.

a. !rue b. Fa'%e

7/24/2019 FIN 350 Week 7 Quiz


73. ))))))))))) in&('&e% the buyin$ (r %e''in$ (* %t(#k inde *uture% ith a %imu'tane(u%(pp(%ite p(%iti(n in the %t(#k% that the inde #(mpri%e%.

a. Lynami# a%%et a''(#ati(n

b. =r(%%-hed$in$#. Inde arbitra$e

d. Net hed$in$

74. Whi#h (* the *(''(in$ is n(t a type (* ri%k a%%(#iated ith *uture% #(ntra#t%B

a. ba%i% ri%k

b. 'i8uidity ri%k

#. market ri%k

d. p(%tpayment ri%k

75. =redit ri%k ei%t% *(r *uture% #(ntra#t% traded (n e#han$e%2 but it i% n(rma''y n(t a#(n#ern *(r (&er-the-#(unter *uture% tran%a#ti(n%.

a. !rue b. Fa'%e

76. )))))))))) (##ur% hen a *irm d(e% n(t ha&e ade8uate #(ntr('% t( m(nit(r the emp'(yee%re%p(n%ib'e *(r it% *uture% p(%iti(n% and th(%e emp'(yee% take m(re %pe#u'ati&e p(%iti(n%than the *irm de%ire%.

a. =redit ri%k

b. =(ntr(' ri%k

#. Pperati(na' ri%k

d. >ana$ement ri%k

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FIN 350 Week 7 Quiz