9. Rock Solid has a stock portfolio worth $100 million, which tracks closely with the S&P 500. The portfolio manager fears that a decline is coming therefore buys put options to protect the entire portfolio when the S&P 500 was $1,006. The strike price the manager entered into was at $1,006. Suppose after a year the S&P 500 is $954 and the portfolio is worth $91 million. The options premium is $1 million. What is the value of the total position?

A. $92,067,594

B. $90,000,000

C. $96,168,986

10. You, Obama, and Jordan believe the current dividend and growth rate is $2 and 4%. However, you believe the discount rate is 14%, Obama believes it is 9%, Jordan believes it is 8%. What will be the prevailing price if only you three are the market participants?

A. $31.58

B. $32.84

C. $41.60

D. $52.00

11. A portfolio manager has a $119 million dollar portfolio that tracks the S&P 500. Currently the S&P 500 is trading at $1,100. How will the manager hedge the portfolio using index options??

A. Buy 1082 put options contracts

B. Sell 1082 put options contracts

C. Sell 433 put options contracts

D. Buy 433 put options contracts

12. The expected dividend is $2 for Stock A. The growth rate is 6%. The required rate of return is 12%. Based on the Dividend Discount Model what is the estimated price of Stock A?

A. $33.33

B. $34.33

C. $34.33

D. $35.33

13. An investor acquires 101 shares of IBM at a price of $50 per share using 57% percent margin. If the price of the shares falls to $40, what is the stock return?

A. -46.51%

B. -35.09%

C. -44.51%

D. -20.00%

14. Which of the following strike prices for a call option has a higher premium?

A. $7

B. $8

C. $9

D. $10

Shares Bid. Shares. Ask

1200. $44.00 700. $48.00

300. $40.00. 800. $43.00

800 $39.00. 400. $44.00

15. Table 5 shows the limit book for IBM stock. You place a market order to buy 200 shares. At what price will you buy the shares?

A. $39.00

B. $43.00

C. $45.00

D. $48.00

16. Table 5 shows the limit book for IBM stock. You place a market order to buy 1,400 shares. At what price will you buy the shares (the cost basis)?

A. $44.00

B. $43.50

C. $43.33

D. $43.00