6) An investor who owns a S&P 500 index ETF (a fund that tracks the value of the stocks in the S&P 500 index) can fully hedge against a decline in the market by: a. Writing a covered call (selling a call option on the S&P500 ETF). b. Writing a naked call of the S&P 500. c. Selling a put option on the S&P 500. d. Buying a put option on the S&P 500 7) A company might want to raise its dividend if: a. It wants to signal to investors that it believes its earnings growth is sustainable. b. It believes it has a clientele that relies on dividends for income. c. It perceives that high dividend-paying companies are being rewarded by the market. d. All of the above.

8) We should expect to observe that firms active in derivatives markets: a. Operate with greater leverage than other firms. b. Have less stable earnings. c. Have higher costs and lower earnings. d. Are unaffected they can always replicate whatever they are doing in spot markets. 9) If interest rates are expected to become more volatile then callable corporate bonds should: a. Be unaffected the buyer of the bond already paid for the embedded call. b. Rise in price. c. Fall in price. d. There is no way to tell changes in the bond price may offset changes in the embedded options value. 10) On average, the stock market rewards companies that increase their leverage. This is consistent with: a. The Trade-Off and Modigliani-Miller theories of the capital structure. b. The Trade-Off and Pecking Order theories of the capital structure. c. The Trade-Off and Agency Cost of FCF theories of the capital structure. d. A desire of firms to increase their ROE while keeping the variability of ROE constant.