1) A straddle trade:

A. is a volatility trade

B. is constructed by buying the asset and selling a Call option on the asset

C. both (A) and (B) are correct

2) A covered call strategy:

A. involves buying stock and buying a Call option

B. involves shorting stock and writing a Call option

C. involves buying stock and writing a Call option

3) A covered call strategy:

A. involves potentially unlimited profits

B. involves potentially unlimited losses

C. involves losses that are potentially larger than profits

4) With a protective put strategy, an advantage of selecting a low strike price for the put option is:

A. it provides stronger protection than a put with a higher strike price

B. it costs less to buy than a put option with a higher strike price

C. the cash inflow from the premium is higher than for a put option with a higher strike price

D. the maximum loss is smaller than for a put option with a higher strike price

5) With a covered call strategy, an advantage of selecting a low strike price for the call option is:

A. its more likely to expire out-the-money than a call with a higher strike price

B. it costs less to buy than a call option with a higher strike price

C. the cash inflow from the premium is higher than for a call option with a higher strike price

D. the maximum profit is greater than for a call option with a higher strike price

6) Convertible bond arbitrage involves:

A. buying a convertible bond and shorting stock of a company

B. shorting a convertible bond and buying stock of a company

C. buying an under-priced convertible bond and shorting an over-priced convertible bond

D. buying stock in a takeover target company and shorting stock in the acquiring company

7) Merge arbitrage involves:

A. borrowing money in countries with low interest rates and saving in countries with high interest rates

B. shorting a convertible bond and buying stock of a company

C. buying an under-priced convertible bond and shorting an over-priced convertible bond

D. buying stock in a takeover target company and shorting stock in the acquiring company

8) A carry trade involves:

A. profiting from differences in rates on different investments

B. borrowing money in countries with low interest rates and saving in countries with high interest rates

C. shorting bonds with a low yield and buying bonds with a high yield

D. all of the above