The last exam will cover these 3 tests plus a few small quizzes. The attached should give you a good idea of the material. Let me know if you have any questions. You can see which I got correct with 4/4, and the ones I got wrong got 0/4.

Exam 1 Question 1 4 / 4 pts An investment adviser has decided to purchase a few alternative investments, some stocks, and five bonds with equal amounts invested in each of these three categories. This decision reflects which part of the investment process? Security selection Correct! Asset allocation Investment analysis Portfolio analysis Question 2 0 / 4 pts __________ assets are used to produce other assets in an economy, while __________ assets represent ownership of the other category of assets. You Answered Financial, real Financial, financial Correct Answer Real, financial Real, real Question 3 4 / 4 pts ____________ is not a derivative security. A futures contract Correct! A share of common stock None of these options (All of the answers are derivative securities.) A call option Question 4 4 / 4 pts Which statement below best describes active portfolio management? Correct! Active management is the hunt for mispriced securities and it works best when investors behave irrationally and dispersion between the best and worst performers is high. Active management is the hunt for mispriced securities and it works best when investors behave rationally and dispersion between the best and worst performers is low. Active management makes no attempt to time the market and it works best when investors are behaving rationally and the dispersion between the best and worst performers is low. Active management makes no attempt to time the market and it works best when investors are behaving irrationally and the dispersion between the best and worst performers is high. Active management is the hunt for mispriced securities and it involves market timing strategies (tactical asset allocation). It works best when investors are behaving irrationally (letting their emotions win) and when dispersion between the best and worst performers is high (potential advantage for skilled stock pickers). Question 5 4 / 4 pts Debt securities promise: I. A fixed stream of income II. A stream of income that is determined as a percentage of par III. An ownership interest in the issuer I and III only II or III only I only Correct! I or II only Question 6 0 / 4 pts Most data suggests that active management does not consistently outperform passive management after fees are taken into consideration. Although, there are certain times when specific sectors or stocks behave irrationally and create an opportunity for mispricing. Which strategy is best equipped to take advantage of this situation? a passive management strategy Correct Answer a core-and-satellite strategy You Answered an active management strategy a market timing strategy Question 7 4 / 4 pts We need capital markets to function properly in order to do all of the following except: Correct! Provide the government with a target for regulation. Enable early investors to cash out substantial profits. Enable companies to invest in new assets. Provide investors with sufficient investment options. Question 8 4 / 4 pts Which of the following is not a true statement regarding municipal bonds? The interest income from a municipal bond is exempt from federal income taxation. The interest income from a municipal bond is exempt from state and local taxation in the issuing state. Correct! A municipal bond is a debt obligation issued by the federal government. A municipal bond is a debt obligation issued by state or local governments. Question 9 4 / 4 pts Which one of the following is a true statement regarding the Dow Jones Industrial Average? It is a value-weighted average of all stocks traded on the New York Stock Exchange. Correct! It is a price-weighted average of 30 large industrial stocks. It is a value-weighted average of 60 large industrial stocks. It is a price-weighted average of 100 large stocks traded on the New York Stock Exchange. Question 10 0 / 4 pts A __________ gives its buyer the right to sell an asset for a specified exercise price on or before a specified expiration date. interest rate swap You Answered call option Correct Answer put option futures contract Question 11 4 / 4 pts Large well-known companies often issue their own short-term unsecured debt notes directly to the public, rather than borrowing from banks; their notes are called _________. certificates of deposit Correct! commercial paper repurchase agreements bankers' acceptances Question 12 4 / 4 pts An investor purchases one municipal bond and one corporate bond that pay rates of return of 5% and 6.4%, respectively. If the investor is in the 15% tax bracket, his after-tax rates of return on the municipal and corporate bonds would be, respectively, _____. 4.25% and 6.4% 5% and 6.4% 5.75% and 5.44% Correct! 5% and 5.44% Question 13 4 / 4 pts Ownership of a call option gives the owner the right to ______________ a specific stock, on or before a specific date, at a specific price. Correct! buy sell Question 14 4 / 4 pts Three stocks have share prices of $12, $75, and $30 with total market values of $400 million, $350 million, and $150 million, respectively. If you were to construct a price-weighted index of the three stocks, what would be the index value? 43 Correct! 39 300 30 Question 15 4 / 4 pts The _________ price is the price at which an investor must buy shares of a stock or option. bid clearing Correct! ask settlement Question 16 4 / 4 pts Margin trading involves borrowing money and using the borrowed proceeds to purchase an asset (a loaned asset). Margin trading is therefore a risk enhancing (risky) strategy because ______________________. Correct! it creates a loan, and the loan may need to be repaid by selling assets other than what the loan was used to purchase if the loaned asset declines substantially in price. it creates a loan, and a margin call could result if the loaned asset rises above the initial purchase price. it creates a loan, and a maintenance call could result if the loaned asset rises above the initial purchase price. it creates a loan, which could amplify an investors profits. Question 17 4 / 4 pts Which of the following is (are) true about dark pools? I. They allow anonymity in trading. II. They often involve large blocks of stocks. III. They are involved with high frequency trading. Correct! I, II, and III I and III only I and II only II and III only Question 18 0 / 4 pts You purchased XYZ stock at $50 per share. The stock is currently selling at $65. You could protect your gains while allowing for more potential appreciation by placing a _________. market order You Answered sell limit order buy limit order Correct Answer trailing stop order Question 19 4 / 4 pts Which one of the following invests in a portfolio that is fixed for the life of the fund? Mutual fund Money market fund Managed investment company Correct! Unit investment trust Question 20 4 / 4 pts Net asset value is defined as ________________________. Correct! market value of assets minus liabilities divided by shares outstanding market value of assets divided by shares outstanding book value of assets divided by shares outstanding book value of assets minus liabilities divided by shares outstanding Question 21 4 / 4 pts A fund that invests in securities worldwide, including the United States, is called _______________. an emerging market fund a regional fund Correct! a global fund an international fund Question 22 4 / 4 pts Investors who want to liquidate their holdings in a closed-end fund may ___________________. sell their shares back to the fund at net asset value sell their shares back to the fund at a discount to net asset value sell their shares back to the fund at a premium to net asset value Correct! sell their shares on the open market Question 23 4 / 4 pts If a mutual fund has multiple-class shares, which class typically has a frontend load? Class C Class B Institutional Class Correct! Class A Question 24 4 / 4 pts The primary difference between a balanced fund and an asset allocation is: that an asset allocation fund's asset mix is roughly static while a balanced fund is dynamic over time. Correct! that a balanced fund's asset mix is roughly static while an asset allocation fund is dynamic over time. that a balanced fund invests in a mix of stocks and bonds, while an asset allocation fund does not. that an asset allocation fund invests in a mix of stocks and bonds, while a balanced fund does not. Question 25 4 / 4 pts An exchange trade fund (ETF) has all of the following benefits except: ETFs are a diversified pool of investments. ETFs can be protected with a stop order. ETFs trade throughout the day so an investor knows the price at which they will transact. Correct! ETFs are limited to investing in only large domestic companies. Exam 2 Question 1 You bought shares in a company at $92.50 on January 2nd and during the year it paid dividends of $1.75 per share. At the end of the year, it was trading at $96.25. If inflation is 2%, then what was your real return on this investment? 5.95% Correct! 3.87% 4.15% 8.11% The first step is to find the holding period return (HPR) (96.2592.50+1.75)/92.50 = 5.95% Then adjust this nominal return into real terms using the Fisher Effect 1.0595 = (1+r) x 1.02 1.0595/1.02 = 1.0387 so, the real rate of return is 3.87% Question 2 4 / 4 pts A portfolio with a 25% standard deviation generated a return of 15% last year when T-bills were paying 4.5%. This portfolio had a Sharpe ratio of ____________. .22 .60 Correct! .42 .25 Question 3 4 / 4 pts Portfolio A has a beta of .2 and an expected return of 13%. Portfolio B has a beta of .4 and an expected return of 15%. The risk-free rate of return is 10%. If you wanted to take advantage of an arbitrage opportunity, you should take a short position in portfolio __________ and a long position in portfolio _________. (HINT: How can you test for equilibrium using the data provided?) A; A Correct! B; A A; B B; B The left side of the equation above shows asset A, while the right side shows asset B. Short the one with the lower Treynor ratio and buy (go long) the asset with the higher Treynor ratio. Question 4 0 / 4 pts A stock has returns of 12%, 4%, 8.75%, 5.1%, -12%, and 9.15% over the last 6 years. What is a 95% confidence interval for this stock? Correct Answer -12.68% to 21.68% You Answered 1.76% to 15.24% -11.18% to 20.18% 2.36% to 14.64% From your STAT key on the TA BA II PLus you should find that the mean is 4.5% and the standard deviation (Sx) is 8.59%. A 95% confidence interval is the mean plus/minus 2 x the standard deviation. Question 5 0 / 4 pts Conceptually, the Value at Risk model is an attempt to measure __________________. the dollar amount at risk in an extreme upper tail risk event. Correct Answer the dollar amount at risk in an extreme lower tail risk event. the dollar amount at risk beyond 3 standard deviations from the mean. You Answered the dollar amount at risk beyond 1 standard deviation from the mean. The Value at Risk model attempts to measure only the dollar loss in the instance of an extreme lower tail risk event. We do not care about the upper tail because this would mean making much more than expected. The amount of standard deviations changes based upon which VaR (like the 5% VaR) we are looking for, but whatever the standard deviation...we only care about the lower tail standard deviation not both the lower and upper tail. Question 6 4 / 4 pts Market risk is called either______________ or _______________. unique risk; diversifiable risk unique risk; nondiversifiable risk systematic risk; diversifiable risk Correct! systematic risk; nondiversifiable risk Question 7 4 / 4 pts You invest $1,000 in a portfolio, which is composed of a risky asset with an expected rate of return of 16% and a Treasury bill with a rate of return of 6%. If your goal is to have $1,100 at the end of one year, then you would need to invest _________ in the risky asset and _____________in the Treasury bill. (HINT: How can you use what you know about HPRs to get started on this solution?) Correct! 40%; 60% 75%; 25% 25%; 75% 60%; 40% Starting with $1,000 and desiring $1,100 at year end means a 10% desired return. The required weight: .10 = [(w)(.16)] + [(1w)(.06)] w = 40%, which is the weight on the risky asset. 1w = 60%, which is the weight on the Treasury bill. Question 8 4 / 4 pts The optimal risky portfolio can be identified by finding: I. The minimum-variance point on the efficient frontier II. The CAL that connects the risk-free rate and the minimum-variance point on the efficient frontier III. The tangency point of the capital market line and the efficient frontier IV. The line with the absolute steepest slope that connects the risk-free rate to the efficient frontier II and III only I and IV only Correct! III and IV only I and II only Question 9 0 / 4 pts Multiple R 0.35 R2 Adjusted R2 Standard Error Observations Intercept Market 0.12 0.02 38.45 12 Coefficient 4.05 1.32 Standard Error 15.44 0.97 t-Stat p-Value 0.26 1.36 0.80 0.10 Using the regression results shown above, the SCL for this stock is Rstock = ___ + ___ Rmarket. And, the regression results are___________________. 0.26; 1.36; significant You Answered 0.26; 1.36; not significant 4.05; 1.32; significant Correct Answer 4.05; 1.32; not significant Question 10 4 / 4 pts Using the capital asset pricing model, what is the expected return on an investment with a 1.3 beta assuming a risk-free rate of 6%, and the expected return on the market is 18%. 6.0% 15.6% 18.0% Correct! 21.6% E(r) = 6% + [(1.3)(18%6%)] = 21.6% Question 11 0 / 4 pts Analysts often cite mean reversion as the reason why they will sometimes adjust a beta factor. If an analyst observed a statistically significant beta of 1.75, what would be the adjusted beta? Correct Answer 1.50 You Answered 1.16 1.75 1.00 Question 12 4 / 4 pts The weak form of the efficient market hypothesis (EMH) proposes that __________________ is worthless, while the semi-strong form is a test of ______________________ being worthless. Correct! technical analysis; fundamental analysis technical analysis; inside information fundamental analysis; technical analysis inside information; fundamental analysis Question 13 4 / 4 pts A support level is ___________________. an equilibrium price level justified by characteristics such as earnings and cash flows Correct! a level below which the market is unlikely to fall a level beyond which the market is unlikely to rise the peak of a market wave or cycle Question 14 4 / 4 pts The important take away from EMH is that _______________________. inside information is relatively useless in the investment decision-making process. Correct! new information is assimilated quickly into a stock's price. technical analysis is a useful tool to consistently beat the market. proper fundamental analysis can produce reliable market outperformance. Question 15 4 / 4 pts Market anomaly refers to __________________________. an unexpected spike in trading volume. a support/resistance crossover that is maintained. an unexpected shock to the market that is sharp but not persistent. Correct! price distortions that differ from the behavior predicted by the efficient market hypothesis. Question 16 4 / 4 pts Conventional finance theory assumes investors are _______________, and behavioral finance assumes investors are _____________. philanthropic; greedy Correct! rational; irrational greedy; philanthropic irrational; rational Question 17 4 / 4 pts Bill and Shelly are friends. Bill invests in a portfolio of hot stocks that almost all his friends are invested in. Shelly invests in a portfolio that is totally different from the portfolios of all her friends. Both Bill's and Shelly's stocks fall 15%. According to the theory of regret avoidance, _________________________________________. Bill and Shelly will have equal regret over their losses Bill will have more regret over the loss than Shelly Correct! Shelly will have more regret over the loss than Bill Bill's and Shelly's risk aversion will increase in the future Question 18 4 / 4 pts Your two best friends each tell you about a person they know who successfully started a small business. That's it, you decide; if they can do it, so can you. This is an example of _____________. Correct! overconfidence bias conservatism bias framing bias mental accounting Question 19 4 / 4 pts Trading volume information is ____________________ in the investment decision-making process. Correct! potentially useful as confirmation of other information relatively useless not used (because it is easily manipulated) incredibly useful as a primary tool Question 20 4 / 4 pts Most investors generally consider a high amount of short interest to be a __________ signal. bullish Correct! bearish Question 21 4 / 4 pts A coupon bond that pays interest semiannually, matures in 8 years, and has a yield-to-maturity of 6%. If the coupon rate is 7%, the intrinsic value of the bond today will be __________. Correct! $1,062.81 $1,000.00 $1,100.03 $1,081.82 N = 8 x 2 = 16 FV = 1,000 I/Y = 6/2 = 3 PMT = 70/2 = 35 CPT PV = 1,062.81 Question 22 4 / 4 pts You can be sure that a bond will sell at a premium to par when _________. its coupon rate is less than its conversion value its coupon rate is equal to its yield to maturity Correct! its coupon rate is greater than its yield to maturity its coupon rate is less than its yield to maturity Question 23 0 / 4 pts A certain semi-annual bond has 8 years remaining until maturity and 5 years remaining until it is callable at par. If this bond pays a 6% coupon and its current price quote is 102.37, then what is its appropriate yield? 2.73% You Answered 5.63% Correct Answer 5.45% 2.81% This is a callable bond, so the appropriate yield to calculate is the yieldtocall. N = 5 x 2 = 10 PMT = 60/2 = 30 FV = 1,000 PV = 1,023.70 CPT I/Y = 2.73 x 2 = 5.45% Question 24 4 / 4 pts Consider the liquidity preference theory and the shape of the yield curve. On average, one would expect investors to require _______________. none of these options the same yield on both short-term bonds and long-term bonds a higher yield on short-term bonds than on long-term bonds Correct! a higher yield on long-term bonds than on short-term bonds Question 25 4 / 4 pts While conducting macro-level due diligence, an analyst notices that the yield curve has just shifted to a downward slope. This indicates _______________________. that real interest rates are declining. that longer-term bond prices has fallen substantially. Correct! that investors are expecting a recession. that investors are expecting a booming economy. Question 26 4 / 4 pts Which of the following set of conditions will result in a bond with the greatest price volatility? A high coupon and a short maturity A low coupon and a short maturity Correct! A low coupon and a long maturity A high coupon and a long maturity Question 27 4 / 4 pts You own a bond that has a duration of 6. Interest rates are currently 7%, but you believe the Fed is about to increase interest rates by 25 basis points. Your predicted price change on this bond is ________. 1.4% gain 2.51% loss Correct! 1.4% loss 2.51% gain Modified Duration: Price change: Question 28 0 / 4 pts You have a 15-year maturity, 4% coupon, 6% yield bond with duration of 10.5 years and a convexity of 128.75. The bond is currently priced at $805.76. If the interest rate were to increase 200 basis points, your predicted new price for the bond (including convexity) is _________. Correct Answer $666.88 $638.85 $705.03 You Answered $642.54 Modified Duration : Price Change: New Price: Question 29 0 / 4 pts An investor is expecting declining interest rates. In order to potentially maximize their returns (factoring only price movement), they should rebalance their fixed income holdings to bonds with the _________ coupon and the _________ maturity. highest; longest You Answered highest; shortest lowest; shortest Correct Answer lowest; longest Question 30 4 / 4 pts The consensus prediction is for rising interest rates. An active bond manager would employ which strategy? Switch from low-duration to high-duration bonds. Switch from low-coupon to high-coupon bonds. Correct! Switch from high-duration to low-duration bonds. Switch from high-grade to low-grade bonds. Exam 3 Question 1 4 / 4 pts You can earn abnormal returns on your investments via macro forecasting _________________. if you can forecast the economy as well as the average forecaster only if you can forecast the economy with perfect accuracy if you can forecast the economy at all Correct! if you can forecast the economy better than the average forecaster Question 2 4 / 4 pts GDP is _______________________and its investment impact is _____________________. Correct! the total market value of goods and services produced in the economy; meaningful the total manufacturing output in the economy; not meaningful the difference between government spending and government revenues; not meaningful the amount of personal disposable income in the economy; meaningful Question 3 4 / 4 pts If the currency of your country is depreciating, this should _________________ exports and _________________ imports. Correct! stimulate; discourage discourage; discourage stimulate; stimulate discourage; stimulate Question 4 4 / 4 pts Fiscal policy is managed by _______________________, while monetary policy is managed by _________________________, and ________________________ is more quickly applied than its alternative. the federal government; the Federal Reserve Bank; fiscal policy Correct! the federal government; the Federal Reserve Bank; monetary policy the Federal Reserve Bank; the federal government; monetary policy the Federal Reserve Bank; the federal government; fiscal policy Question 5 4 / 4 pts If you believe the economy is about to go into a recession, you might change your asset allocation by selling _____________ and buying ________________. defensive stocks; long-term bonds long-term bonds; growth stocks defensive stocks; growth stocks Correct! cyclical growth stocks; long-term bonds Question 6 4 / 4 pts A stock analyst observed the following industry-life cycle information: The current penetration rate in the U.S. Market is not low but not maxed out either...however, it will be difficult to increase. Manufacturers compete fiercely on the basis of price, and price wars within the industry are common. This industry is most likely in the _______________ stage. consolidation start-up Correct! maturity relative decline Question 7 0 / 4 pts An investor observes the following valuation data: Current 5-Yr Avg. P/E P/E Company 15.75 14.27 A Company 12.37 13.41 B 5-Yr. 5-Yr Low Industry S&P 500 High P/E P/E Avg. Index 16.05 12.20 15.25 14.75 15.73 11.71 13.77 14.75 With this data in mind, it appears that Company A is most likely __________________, while Company B is most likely _____________________. under-valued; under-valued You Answered under-valued; over-valued Correct Answer over-valued; under-valued over-valued; over-valued Question 8 0 / 4 pts The purpose of equity valuation is ________________________. to find the best price for a stock for all investors. You Answered to calculate the exact value of a stock at any point in time. Correct Answer attempting to discern if the current stock price may be a good entry or exit point. trying to estimate the future value of a given stock. Question 9 0 / 4 pts An underpriced stock provides an expected return that is ____________ the required return calculated from the capital asset pricing model (CAPM). You Answered less than Correct Answer greater than equal to greater than or equal to Question 10 4 / 4 pts Your required return is 10%. You are considering two different stocks. Each of the stocks is expected to pay a dividend of $4 in the upcoming year. The expected growth rate of dividends is 6% for stock A and 5% for stock B. Using the constant-growth DDM, the intrinsic value of stock A _________________. will be less than the intrinsic value of stock B Correct! will be higher than the intrinsic value of stock B will be the same as the intrinsic value of stock B will be the same as the intrinsic value of stock B The intrinsic value of Stock A is $100.00 [$4.00/(.10.06)], while the intrinsic value of Stock B is $80.00 [$4.00/(.10.05)]. Question 11 0 / 4 pts An analyst observes the following information on two stocks: Company A Company B Current Price $35.00 $45.00 Current EPS $2.00 $2.50 Growth Rate 10% 15% The PEG for A is ______________and the PEG for B is _________which means that company _________is more reasonably valued based solely upon the PEG. Correct Answer 1.75; 1.20; B 17.5; 18.0; B 1.75; 1.20; A You Answered 17.5; 18.0; A Question 12 4 / 4 pts You are considering acquiring stock in Aha Shopping Center (ASC). Your desired holding period is 1 year. ASC is expected to pay a dividend towards the end of your holding period of $1.25 and your estimate of their price 1 year from now is $35. If your required return is 12%, then the maximum price that you would be willing to pay for a share today is __________. $41.32 $31.25 Correct! $32.37 $38.47 Question 13 4 / 4 pts Lifecycle Motorcycle Company is expected to pay a dividend in year 1 of $2, a dividend in year 2 of $3, and a dividend in year 3 of $4. After year 3, dividends are expected to grow at the rate of 7% per year. Your required return is 12%. Using the multistage DDM, the stock's intrinsic value is __________ today. $85.60 Correct! $67.95 $65.13 $63.80 Question 14 4 / 4 pts A certain stock has a required return of 12%, a growth rate of 8.5%, and a dividend payout rate of 40%. What is their justified P/E ratio? 15.42 17.14 12.51 Correct! 11.43 (1b) = the dividend payout rate The Justified P/E: Question 15 4 / 4 pts When assessing the sustainability of a firm's cash flows, analysts will prefer to see cash growth generated from which of the following sources? Correct! Cash flow from operating activities Cash flow from financing Cash flow from extraordinary events Cash flow from investment activities Question 16 0 / 4 pts 2012 $35 $125 Cash Cash from Operations Net Capital Spending $137 Cash from Financing $23 2013 $40 $120 2014 $45 $118 2015 $50 $112 $136 $22 $139 $26 $142 $31 Based upon the data shown above (in millions) for a fictitious company, which of the following statements is correct? I. This firm appears to be a good investment because of its steady growth in cash. II. This firm's cash flow strength has come from unsustainable sources. III. Given only this data, an analyst would be very excited about this company's sustainable growth potential. You Answered II only Correct Answer I and II only I only II and III only Question 17 4 / 4 pts Abix, Inc. has invested capital of $100 million, a cost of capital (k) of 18%, a weighted average cost of capital (WACC) of 15%, a return on assets (ROA) of 9%, and a return on equity (ROE) of 18%. What is the economic value added (EVA) for Abix, Inc.? $3 million -$4 million $8 million Correct! -$6 million Question 18 4 / 4 pts A firm has a return on assets (ROA) of 8% and a debt/equity ratio of .5; its return on equity (ROE) is _________. 8% Correct! 12% 4% 6% Equity Multiplier ROE: Question 19 4 / 4 pts Refer to the financial statements above. The firm's current ratio for 2014 indicates that the company's liquidity has ________ since 2013. Correct! fallen risen stayed the same Question 20 4 / 4 pts Using the financial statements above, the trend in this company's debt-to-equity ratio is ____________________ and, in general, it tells us that the company has ____________________ financial health. worsening; moderate improving; weak Correct! worsening; weak improving; moderate Question 21 0 / 4 pts Using the financial statements above, this company's ROE for 2014 is _________. (HINT: since you are using the Income Statement and the Balance Sheet, what extra step do you need to take) Correct Answer 21.54% 21.27% You Answered 20.94% 20.43% Question 22 4 / 4 pts ______________ option can only be exercised on the expiration date. An American Correct! A European An Asian A Mexican Question 23 4 / 4 pts An American put option gives its holder (buyer) the right to _______________. sell the underlying asset at the exercise price only at the expiration date buy the underlying asset at the exercise price on or before the expiration date Correct! sell the underlying asset at the exercise price on or before the expiration date buy the underlying asset at the exercise price only at the expiration date Question 24 0 / 4 pts A certain call option uses the option chain below: Current Strike Price Price $41.77 $45.00 Bid Ask Last Volume $0.56 $0.60 $0.59 165 Open Interest 30,481 If an investor were to buy 100 call option contracts, they would pay ____________________ not factoring any trading costs. $56.00 $5,600.00 Correct Answer $6,000.00 You Answered $60.00 Question 25 4 / 4 pts A put option on Coca Cola has an exercise price of $45. The current stock price is $41. The put option is _______________. out of the money knocked out Correct! in the money at the money Question 26 4 / 4 pts What strategy could be considered insurance for an investment that is already owned within a portfolio? Straddle Correct! Protective put Covered call Short put Question 27 0 / 4 pts What strategy is designed to ensure a value within the bounds of two different stock prices? Correct Answer Collar Protective put You Answered Straddle Covered Call A collar is buying a put and selling a call at a higher price. The investor has created a trading range for their stock. If the stock goes down below the long put strike then there is downside protection. If the stock rises above the short call then you sell at that price. This is best paired with owning the underlying security. A straddle is a play on option volitility...either big up side (long call) or big downside (long put). Question 28 4 / 4 pts You own shares of Coca Cola and write a short call option on your shares. This strategy is called a _________. long straddle money spread naked call Correct! covered call Question 29 4 / 4 pts You write one IBM July 120 call contract for a premium of $4. You hold the option until the expiration date, when IBM stock sells for $121 per share. You will realize a ______ on the investment. $200 loss $600 loss $200 profit Correct! $300 profit $4 gain on writing the option...$1 loss on principal...$3 net gain x 100 shares = $300 profit. Question 30 4 / 4 pts You purchase one IBM July 120 put contract for a premium of $3. You hold the option until the expiration date, when IBM stock sells for $123 per share. You will realize a ______ on the investment. Correct! $300 loss $200 profit $500 loss $300 profit The option expires unused so the put buyer is out the $3 per contract = $300 loss