1) Derivative markets differ from stock and bond markets in that:

A. derivative products are a zero sum game

B. derivatives are not issued by the company that the contracts relate to

C. both A and B

D. none of the above

2) An investor buys a Call option on a stock for $5. The strike price is $40 per share. On the expiry date the market price of the stock is $42 per share.

A. The investor has made a loss of $5

B. The investor has made a profit of $2

C. The investor has made a profit of $3

D. The investor has made a loss of $3

3) A Put option with a strike price of $60 on a stock trading at $50 and expiring in one months time:

A. has zero time value

B. has zero intrinsic value

C. would trade for $10 in the options market

D. is in-the-money

4) Suppose you are looking at two different Call options on the same stock with the same expiry date, but one has a strike price of $40 and the other has a strike price of $50. The option with strike price $50 has:

A. a lower premium than the option with strike price $40

B. a higher premium than the option with strike price $40

C. a premium of $10

5) Which of the following investments would require margin?:

A. buying a put option

B. buying a futures contract

C. A and B

D. none of the above