1. The premium paid on an option contract (either a put or a call) represents the compensation the buyer of the option receives from the seller (writer) of the option for the ability to use the option if it becomes profitable. If the buyer of the option does not use the option before expiration, this premium must be returned back to the seller (writer) at the time the option expires.

   True

   False

2 points

QUESTION 3

1. On the day of settlement, the futures price must equal the spot price. The process by which this occurs is termed convergence to spot.

   True

   False

2 points

QUESTION 4

1. Under a discretionary managed account, a professional money manager must consult with the client each time a change is made to the client's account as it depends on the discretion of the client as if the investment action is appropriate.

   True

   False

2 points

QUESTION 5

1. Style drift is the movement over time away from one benchmark index (e.g., S&P 500) with certain characteristics, to another index (e.g., Russell 1000) with different characteristics. Such a style drift will have an impact on the performance evaluation of a given investment manager.

   True

   False

2 points

QUESTION 6

1. To account for stock splits, the exercise price of an option contract on the impacted security is reduced by the factor of the split, and the number of options held by the option buyer under the contract is increased by that factor.

   True

   False

2 points

QUESTION 7

1. Closed-end investment companies (i.e., closed-end funds) were the only type of fund available in the U.S. until 1924 when the first open-end mutual fund was started in Boston.

   True

   False

2 points

QUESTION 8

1. Noise Trading would normally be classified as a type of fundamental analysis strategy.

   True

   False

2 points

QUESTION 9

1. In the case of a Naked (uncovered) option the writer of the option contract does NOT have to post margin in his/her account when they write the option.

   True

   False

2 points

QUESTION 10

1. Under a forward contract the buyer and seller deal with an exchange, not with each other.

   True

   False

2 points

QUESTION 11

1. Most Venture Capital firms can hold an invest position in a company for up to 10 years or more.

   True

   False

2 points

QUESTION 12

1. Under an Involuntary (Chapter 6) bankruptcy, one or more of a firm's creditors petition a court to have the company (debtor) judged insolvent.

   True

   False

2 points

QUESTION 13

1. Options may sell for more than their intrinsic value in the market, but should never sell for less than their intrinsic value.

   True

   False

2 points

QUESTION 14

1. Since the 1930's commercial banks have NOT been permitted to do any type of securities underwriting.

   True

   False

2 points

QUESTION 15

1. With regards to a futures contract, the SHORT position will make money when the underlying item's price RISES.

   True

   False

2 points

QUESTION 16

1. If interest rates rise, the value of Master Limited Partnership (MLP) units will rise.

   True

   False

2 points

QUESTION 17

1. Basis risk is the risk to an investor arising from the uncertainty about the basis at a given future date. It is the most important type of risk a speculator/hedger faces in dealing with commodity prices.

   True

   False

2 points

QUESTION 18

1. In a " Best Effort" underwriting, the investment bank purchases the securities from the issuing company (thereby guaranteeing a specific price to the issuer) and then seeks its "best effort" to sell the securities to institutional investors.

   True

   False

2 points

QUESTION 19

1. The objective of active portfolio management is to earn a portfolio return which matches the return of a predetermined passive benchmark portfolio (net transaction costs) on a risk-adjusted basis.

   True

   False

2 points

QUESTION 20

1. With regards to a futures contract, open interest refers to the number of futures contracts outstanding which have been established but have not been offset by a reverse trade or exercised (i.e., at maturity date). Long and short positions are not counted separately (i.e., open interest can be defined in terms of either the number of long or short contracts, as for every long contract there will be a corresponding short position).

   True

   False

2 points

QUESTION 21

1. Companies that use the Master Limited Partnership (MLP) format tend to operate in very stable, slow-grow industries such as the energy.

   True

   False

2 points

QUESTION 22

1. An American-style option will normally have a total premium at least as valuable as an otherwise comparable European or similar type option contracts. (That is, American options will generally have a total premium larger than a European option.)

   True

   False

2 points

QUESTION 23

1. The time premium of an option is a function of the probability that the option could change in value by the time of expiration.

   True

   False

2 points

QUESTION 24

1. Most futures contracts involve the actual delivery of the item in the contract.

   True

   False

2 points

QUESTION 25

1. Normal Backwardation occurs when the futures contract price (F0) is less than the spot market price (S0) and thereby leading to the futures price moving upward over time to converge with the spot price at settlement.

   True

   False

2 points

QUESTION 26

1. A Seasoned Offering (Secondary Offering) is where a primary securities offering is made by a company which already has publicly traded securities outstanding in the securities markets.

   True

   False