19.Which of the following statements is most correct?

A.The future price at maturity (F_T) may exceed the spot price at maturity (S_T) in an inverted (backwardation) market

B.Forward contracts are customized futures contracts

C.In a backwardation market the future price exceeds the expected sport price at maturity, so the term structure of the future prices slopes upward

D.In a contango market the future price exceeds the expected spot price at maturity, so the term structure of the future prices slopes downward

19.Which statement below is most correct regarding the parties entering into a futures contract for X bushels of wheat at a certain forward price if on expiration the spot price of wheat turned out to be lower than the forward price that had been agreed to?

A.The speculator who bought the contract had a gain and the speculator who sold the contract had a loss

B.The flour mill operator who bought the contract suffered neither gain nor loss and the speculator who sold the contract had a loss

C.The speculator who bought the contract had a gain and the wheat farmer who sold the contract suffered neither gain nor loss

D.Neither the flour mill operator who bought the contract nor the wheat farmer who sold the contract suffered any gain nor loss on the contract

19.Which of the following statements is incorrect regarding options?

A.A stock option has no time value as long as it is in-the-money

B.According to the put-call parity relationship, call price should exceed put price with the same strike by roughly the difference between the current stock price and the strike price

C.Everything else being the same, call price should rise as the underlying stocks price rises, but at a slower rate

D.A call option is generally more valuable alive (i.e., not exercised) than dead (exercised) even if it is in the money, as long as there is sufficient time left until expiration

20.Which of the following statements is incorrect regarding options?

A.A synthetic stock created by buying a call and selling a put has unlimited upside but limited downside

B.An income strategy is to execute a short strangle

C.A collar is an excellent strategy if you are content with limited upside while limiting the downside of the stock you already own

D.An excellent strategy to speculate on an extremely volatile market situation is to execute a stradde

19.Which of the following strategies should have the biggest net credit entry at the initiation of the options strategy on a particular security?

A.Buy the security, buy ATM (X=30) put and sell OTM (X=40) call, both for 6 month expiration

B.Sell ATM (X=30) put and OTM (X=40) call, both for 6 month expiration

C.Sell OTM (X=25) put and OTM (X=40) call, both for 3 month expiration

D.Sell ATM (X=30) put and OTM (X=40) call, both for 3 month expiration

7. You sold short 100 shares of ABC Inc. stock at $50 per share. Since your short trade, ABC announced and paid dividends of $2 per share. The stock now trades at $57. Will you get a margin call? If you do, how much cash would you have to add to your position in order to avoid a margin call? Assume the initial margin is 50% and the maintenance margin is 30%.

A. Yes margin call; $69

B.Yes margin call; $85

C.Yes margin call; $184

D.No margin call.

18. Which of the following is NOT true regarding short-selling?

A.You expect the stock price to fall when entering a short-sell

B.You have to pay the lender the dividend declared by the company if you shorted the stock on the ex-dividend date

C.As a short-seller you bear the risk of the lender selling his shares before you are ready to cover the shares

Your opening account value on a short-sell is always 150% of the short-sell proceeds

6. Which of the following scenarios may be considered unethical?

A.You bought a sophisticated trading software from a reputable hedge fund and used it to make trading decisions. So far you did very well in your trades

B.You just joined Fidelity Investments, a huge mutual fund company. You decide to look into and mirror the stock picks and hedging strategies of your brother who is a customer at Fidelity and is a smart and successful stock investor.

C.Your stock broker, also a good friend, told you that your investment in ABC Co. is at risk because he read from Bloomberg developing news that the company is being investigated by the SEC for accounting irregularities. He suggested you sell your positions immediately.

D.To get good and timely tips from your friend who is a trader at a famous hedge fund, you decided to entertain him at a fancy restaurant. You learned a great deal from him that night.