HRM3706 ASSIGNMENT 3 SEMESTER 1
2024-2025
Which of the following is NOT true? - ANS-An American option can be exercised at any
time during its
... [Show More] life
*When a CBOE call option on IBM is exercised, IBM issues more stock*
A put option will always be exercised at maturity if the strike price is greater than the
underlying asset price
An call option will always be exercised at maturity if the underlying asset price is
greater than the strike price
Which of the following is NOT true? - ANS-A put option gives the holder the right to sell
an asset by a certain date for a certain price
*The holder of a call or put option must exercise the right to sell or buy an asset*
The holder of a forward contract is obligated to buy or sell an asset
A call option gives the holder the right to buy an asset by a certain date for a certain
price
Which of the following is a reason for hedging a portfolio with an index futures? - ANSThe portfolio is not well diversified and so its return is uncertain
The investor believes the stocks in the portfolio will perform better than the market and
the market is expected to do well
*The investor believes the stocks in the portfolio will perform better than the market but
is uncertain about the future performance of the market*
All of the above
Which of the following is approximately true when size is measured in terms of the
underlying principal amounts or value of the underlying assets? - ANS-The over-thecounter market is twice as big as the exchange-traded market
The exchange-traded market is twice as big as the over-the-counter market
The exchange-traded market is ten times as big as the over-the-counter market
*The over-the-counter market is ten times as big as the exchange-traded market
Which of the following is true? - ANS-Neither futures contracts nor forward contracts are
traded on exchanges
Both forward and futures contracts are traded on exchanges
*Futures contracts are traded on exchanges, but forward contracts are not*
Forward contracts are traded on exchanges, but futures contracts are not
Which of the following is true? - ANS-Gold producers should always hedge the price
they will receive for their production of gold over the next one year
Gold producers can hedge by buying gold in the forward market
*The hedging strategies of a gold producer should depend on whether it shareholders
want exposure to the price of gold
Gold producers should always hedge the price they will receive for their production of
gold over the next three years
A company enters into a short futures contract to sell 50,000 units of a commodity for 70
cents per unit. The initial margin is $4,000 and the maintenance margin is $3,000. What
is the futures price per unit above which there will be a margin call? - ANS-78cents
*72cents*
76 cents
74 cents
A company has a $36 million portfolio with a beta of 1.2. The futures price for a contract
on an index is 900. Futures contracts on $250 times the index can be traded. What
trade is necessary to neutralize the portfolio to be risk free? - ANS-*Short 192 contracts*
Long 192 contracts
Long 96 contracts
Short 96 contracts
A company has a $36 million portfolio with a beta of 1.2. The futures price for a contract
on an index is 900. Futures contracts on $250 times the index can be traded. What
trade is necessary to increase beta to 1.8? - ANS-Long 192 contract [Show Less]