FIU FIN4486 EXAM 1 38092

| November 13, 2015

Question

Suppose that on October 24 you Sell 7 March gold futures contracts for $285 per ounce.

At 11:00 am on October 25 you buy 5 March contracts for $276.5 ounce. At the close of

trading on October 25, gold futures settle for $270.5 ounce. If the contract size is 100

ounces and the initial margin equals 2850, how much do you gain or lose as of the close?

Selected Answer:

Correct Answer:

 

 

 

Question 2

4 out of 4 points

Correct

The interest rate in Great Britain is 8.5 percent per year and the interest rate in the USA is

9.5 percent. If the spot exchange rate is 1.15 dollars per pound, what is the price of a 22

month forward contract to buy the British pound?

 

 

 

Selected Answer:

 

Question 3

0 out of 4 points

Incorrect

Mogul oil refinery is planning to buy 9000 barrels of oil in 9 months. Suppose Mogul

hedges the risk by buying futures on 6300.0 barrels of oil. The current oil futures price is

$24.0 dollars per barrel. If in 9 months the spot price of oil is $23.0 and the futures price is

$23.9 per barrel, what is Mogul’s effective cost per barrel?

 

 

 

 

Question 4

4 out of 4 points

Correct

An investor enters into a short oil futures contract when the futures price is $15.25 per

barrel. The contract size if 100 barrels of oil. How much does the investor gain or lose if

the oil price at the end of the contract equals $17.0

 

 

 

Question 5

4 out of 4 points

Correct

Suppose that a September put option with a strike price of $140 costs $5. 5. Under what

circumstances will the seller (or writer) of the option earn a positive or zero profit? Let S

equal the price of the underlying.

 

 

 

Selected Answer:

 

S > 134.5

Question 6

4 out of 4 points

Correct

Suppose you enter into a long position to buy March Gold for $310 per ounce. The

contract size is 100 ounces, the initial margin is $3100 and the maintenance margin is

$1240. At what price will you receive a margin call?

 

 

 

Question 7

4 out of 4 points

Correct

Suppose you enter into a 6.0 month forward contract on one ounce of silver when the spot

price of silver is $7.3 per ounce and the risk-free interest rate is 9.75 percent continuously

compounded. What is the forward price?

 

 

 

 

Selected Answer:

Question 8

4 out of 4 points

Correct

An investor enters into a long oil futures contract when the futures price is $16.75 per

barrel. The contract size if 100 barrels of oil. How much does the investor gain or lose if

the oil price at the end of the contract equals $14. 75?

 

 

 

 

Question 9

0 out of 4 points

Incorrect

Which of the following statements is true in a market in which no arbitrage

opportunities are available?

 

I. A long forward for delivery in one year at $100 is worth more than a

long call option

 

struck at $100 that expires in one year.

II. A short forward which makes delivery in one year at $100 is worth

more than a long

 

put option struck at $100 that expires in one year.

III. A short forward which makes delivery in one year at $100 is worth

more than a short

 

call option struck at $100 that expires in one year

IV. A long forward for delivery in one year at $100 is worth more than a

short put option

 

struck at $100 that expires in one year

 

 

 

Question 10

4 out of 4 points

Correct

Suppose that on October 24 you buy 7 March gold futures contracts for $325 per ounce.

At 11:00 am on October 25 you buy 4 more contracts for $330.5 ounce. At the close of

trading on October 25, gold futures settle for $338.0 ounce. If the contract size is 100

ounces and the initial margin equals 3250, how much do you gain or lose as of the close?

 

Question 11

 

 

 

 

4 out of 4 points

Correct

The S&P 500 index has a dividend yield of 7.0 percent. Suppose you enter into a 11.0

month forward contract to buy S&P 500 index . The current value of the index equals

$1166.0 and the risk-free interest rate is 8.5 percent continuously compounded. What is

the forward price?

Selected Answer:

 

 

Question 12

4 out of 4 points

Correct

Generous Dynamics maintains an inventory of 15000 ounces of gold. The company is

interested in protecting the inventory against daily price changes. The correlation of the

daily change in the spot and futures price is . 55, the standard deviation of the daily spot

price change is 20 percent, and the standard deviation of the daily change in the futures

price is 37 percent. Futures contract size is 1000 ounces. How many contracts should GD

buy or sell to hedge its inventory?

Question 13

4 out of 4 points

Correct

Mogul oil company will sell 5000 barrels of oil in 4 months. Suppose Mogul hedges the

risk by selling futures on 5000 barrels of oil. The current oil futures price is $18.1 dollars

per barrel. If in 4 months the spot price of oil is $16.5 and the futures price is $18.8 per

barrel, what is Mogul’s effective price of oil per barrel?

Question 14

4 out of 4 points

Correct

Pixar stock is expected to pay a single $2.2 dividend in 5.0 months. Suppose you enter

into a 9.0 month forward contract to buy one share of Pixar stock when the share price is

$41.6 per and the risk-free interest rate is 6.5 percent continuously compounded. What is

the forward price?

Question 15

4 out of 4 points

Correct

Modern Portfolio Managers (MPM) hold a 4.5 million dollar portfolio of stocks with a

beta of 1.1 measured with respect to the S&P 500 index. The current value of a futures

contract on the index is 1069. 1. The multiplier on the futures equals $250. If MPM wishes

to hedge the systematic risk in its portfolio, how many contracts must it buy or sell?

Selected Answer:

Question 16

0 out of 4 points

Incorrect

Generous Dynamics is planning on buying 12000 ounces of gold in six months. The

correlation of the six-month change in the spot and futures price is . 4. The standard

deviation of six-month change in spot and futures price are 11 percent and 39 percent,

respectively. Futures contract size is 1000 ounces. How many contracts should GD buy or

sell to hedge the future purchase?

Selected Answer:

Question 17

4 out of 4 points

Correct

Suppose that a September put option with a strike price of $90 costs $14.0. Under what

circumstances will the holder of the option earn a profit? Let S equal the price of the

underlying.

Question 18

4 out of 4 points

Correct

Under which of the following cases is a short hedge appropriate?

 

I. you anticipate buying the spot asset in the future

II.. you anticipate selling the spot asset in the future

III. you currently own the spot asset and want to be protected against spot price changes

IV. you anticipate buying a portfolio of stocks in the future

Choices:

 

Question 19

0 out of 4 points

Incorrect

Which of the following is true for all derivative securities we have considered in class?

 

I. they are settled daily

II.. they are zero sum games

III. their future value is derived from an underlying asset or variable at future date

IV. a margin deposit is required

V. they can be used for hedging

Choices:

 

Question 20

4 out of 4 points

Correct

Which of the following statements concerning a minimum variance hedge (MVH) are true?

 

I. the MVH is perfect if the hedge ratio equals one

II.. the MVH allows the hedger to lock in the futures price

III. the optimal hedge ratio is less than one if the volatility of spot price changes is less

than the volatility of futures price changes over the hedging period (?S< ?F)

IV. the MVH chooses the hedge ratio that minimizes the variance of the hedging error

over the hedging period

Choices:

 

Question 21

0 out of 4 points

Incorrect

Which of the following is true about futures contracts?

 

I. they trade in the over the counter market

II.. they are settled daily

III. they are subject to default risk

IV. a margin deposit is required for both long and short positions

V. the contract specifies a range of delivery dates (rather than a single date)

Choices:

 

Question 22

4 out of 4 points

Correct

Modern Portfolio Managers (MPM) hold a 8.0 million dollar portfolio of stocks with a

beta of .65 measured with respect to the S&P 500 index. The current value of a futures

contract on the index is 1045. 2. The multiplier on the futures equals $250. If MPM wishes

to increase its systematic risk in its portfolio to . 85, how many contracts must it buy or

sell?

Question 23

4 out of 4 points

Correct

An investor receives $1055.0 in 1.0 weeks for an initial investment of $1025.0. What is

annual percentage return with continuous compounding?

Selected Answer:

Question 24

4 out of 4 points

Correct

Suppose you enter into a short position to sell March Gold for $255 per ounce. The

contract size is 100 ounces, the initial margin is $2550 and the maintenance margin is

$1020. At what price will you receive a margin call?

Question 25

4 out of 4 points

Correct

Suppose that a September call option with a strike price of $60 costs $8. 5. Under what

circumstances will the holder of the option earn a profit? Let S equal the price of the

underlying.

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