1. Southwest Bank has over $10 million invested in Treasury bonds.The bank is worried that interest rates will rise in the next 12 months.Southwest has decided to hedge against this possibility by selling Treasury bond futures.This action taken by Southwest Bank is known as?

a long hedge

a short hedge

basis trading

a cross-hedge

2. Which of the following is NOT TRUE with respect to market-makers?

They may earn profits when they take positions in options.

They are not subject to the risk of loss on their positions in options.

They earn the difference between the bid price and the ask price on a transaction.

They execute stock option transactions for customers.

3. Shawna is anticipating the price of XYZ stock to decline so she purchases a put option for a premium of $4 with an exercise price of $36.What does the price of XYZ stock have to be for Shawna to break-even?

$26

$27

$32

$34

4. Logan is expecting the price of a particular stock to rise but instead of buying shares of the stock, he purchased a call option.The option had an exercise price of $45 for a premium of $5.Before the option expired, the stock price rose to $53 and Logan exercised his option.What was the return (not annualized) to Logan?

30 percent

70 percent

40 percent

60 percent