1. Derivatives allow investors to achieve the following except for (a) Transfer risk from one party to the other party (b) Amplify potential profits from speculation (c) Eliminate a source of risk in economy (d) Hedge the uncertainty in input prices (e) Hedge the uncertainty in output prices 2. The rebate rate paid to borrowers of a stock will more likely be negative if (a) Many financial institutions are willing to lend shares of the stock (b) The Federal Funds Rate is higher (c) Many investors believe the stock is currently overvalued (d) Many investors believe the stock is currently undervalued (e) None of the above 3. Serena borrowed 100 shares of Cheesecake Factory Inc. (CAKE) from Oliver and sold all these shares to Billy. Now CAKE pays $0.5 cash dividend per share. Which of the following payments is NOT true? (a) CAKE pays $50 to Billy (b) Serena receives $50 from CAKE (c) Serena pays $50 to Oliver (d) Oliver and Billy receive $100 in total (e) Serena still owns Oliver's 100 shares 4. Receiving lottery tickets for free is an example of: (a) Immediate profit today (b) An uncertain payoff in the future (c) Absence of arbitrage (d) More than one of the above (e) None of the above