1. The Free Cash Flow technique for the valuation of stock calculates the total cash in a company at any given point in time divided by:

   		a. The price of the stock
   		b. The dividend paid in the last period
   		c. The number of shares of stock issued by the company

2. A derivative is a financial contract that derives its value from an underlying:

   		a. Asset
   		b. Liability
   		c. Bond

3. Derivative contracts have a price and time that are:

   		a. Fixed
   		b. Variable
   		c. Unspecified

4. Which of the following is not a category of derivatives?

   		a. Options
   		b. Financial futures
   		c. Corporate bonds

5. Options on common stock represent:

   		a. Long term claims on the underlying stock
   		b. Short term claims on the underlying stock
   		c. No claim on the underlying stock

6. Which of the following are functions served by options?

   		a. They provide investors with flexibility in managing investment risk
   		b. They contribute to market efficiency and provide a mechanism for speculation
   		c. Both a and b above

7. A call option gives the buyer the right to:

   		a. Buy shares of the underlying stock
   		b. Sell shares of the underlying stock
   		c. Hold shares of the underlying stock

8. A put option gives the buyer the right to:

   		a. Buy shares of the underlying stock
   		b. Sell shares of the underlying stock
   		c. Hold shares of the underlying stock

9. The per-share price at which the underlying stock may be purchased or sold is called the:

   		a. Stock price
   		b. Exercise price
   		c. Intrinsic price

10. The last date on which an option can be exercised is called the:

    		a. Expiration date
    		b. Termination date
    		c. Final date

11. The price paid for the option is called the:

    		a. Premium
    		b. Discount
    		c. Par value

12. The call writer expects the price of the underlying stock to:

    		a. Go up
    		b. Go down
    		c. Stay the same

13. The call buy expects the price of the underlying stock to:

    		a. Go up
    		b. Go down
    		c. Stay the same

14. The put writer expects the price of the underlying stock to:

    		a. Go up
    		b. Go down
    		c. Stay the same

15. 		a. Go up
    		b. Go down
    		c. Stay the same

16. What happens to most options?

    		a. They expire worthless
    		b. They are exercised
    		c. They are traded in the market

17. Which of the following is not a common option strategy?

    		a. A covered put
    		b. A covered call
    		c. A protective put

18. The objective of a covered call is to:

    		a. Limit the gain on a stock in exchange for cushioning the loss
    		b. Secure unlimited gains on a stock in exchange for cushioning the loss
    		c. Eliminate all gains and losses on the stock

19. The objective of a protective put is to:

    		a. Limit the gains in the price of a stock
    		b. Act as insurance against declines in the price of the underlying stock
    		c. Eliminate all gains and losses on the stock

20. The intrinsic value of a call option is equal to:

    		a. The strike price minus the stock price
    		b. The exercise price minus the strike price
    		c. The stock price minus the strike price

21. The value of an option is equal to the intrinsic value plus:

    		a. Market value
    		b. Time value
    		c. Par value

22. The model most commonly used to determine the value of a call option was developed by:

    		a. Modigliani and Miller
    		b. Black and Scholes
    		c. Harry Markowitz

23. Which of the following is not a factor in determining the value of a call option?

    		a. The price of the underlying stock
    		b. The volatility of the underlying stock
    		c. The risk-free rate of return

24. Although multiple futures exchanges are in operation, most trading occurs on the:

    		a. New York Stock Exchange
    		b. The Chicago Mercantile Exchange
    		c. The Tokyo Stock Exchange

25. A futures contract locks in a price for:

    		a. Delivery today
    		b. Delivery a year from today
    		c. Delivery on a future date

26. Which of the following is not a function of futures markets?

    		a. The guarantee of a higher return for a lower risk
    		b. Price discovery
    		c. Hedging or price risk management

27. The three broad types of financial futures are currency futures, interest rate futures and:

    		a. Equity futures
    		b. Bond futures
    		c. Treasury bill futures

28. A futures contract involves an obligation, either offset occurs, or delivery occurs.

    True

    False

29. Traditionally, participants in the futures market have been classified as either hedgers or speculators. The hedged position:

    		a. Reduces the variance in the outcome
    		b. Increases the variance in the outcome
    		c. Has a higher chance of a small return

30. Futures speculators buy or sell futures contracts in an attempt to earn a return and:

    		a. Disrupt the proper functioning of the market
    		b. Are valuable to the proper functioning of the market
    		c. Do not affect the functioning of the market in any way

31. Investors can use stock-index futures to hedge the:

    		a. Unsystematic risk of common stocks
    		b. The systematic risk of common stocks
    		c. Unpredicted movement in the price of common stocks

32. Interest rate futures are used to hedge risk in which of the following markets?

    		a. Foreign currency market
    		b. Bond market
    		c. Stock market

33. Companies often use currency futures when they are exposed to:

    		a. Interest rate risk
    		b. Foreign exchange risk
    		c. Market risk