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You purchase a house by putting down 20% in cash (equity) and procure a mortgage on the remaining 80% of the cost of the house.
- You purchase a house by putting down 20% in cash (equity) and procure a mortgage on the remaining 80% of the cost of the house. What is the effective leverage on your equity portion of the investment for any future (gain/loss) return on the sale of the house.
- No leverage on the return on your equity portion of the investment
- 20 times on the return on your equity portion of the investment
- 20% on the return on of your equity portion of the investment
- 5 times on the return on your equity portion of the investment
- The effective leverage on return cannot be calculated from the information provided
- If the initial margin is $5,000, the maintenance margin is $3,500 and your balance is $4,000, how much must you deposit?
- $6,000
- $1,500
- $9,000
- nothing
- none of the above
- If the initial margin is $5,000, the maintenance margin is $3,500 and your balance is $3,100, how much must you deposit?
- $1,500
- $400
- $1,900
- 0
- none of the above
- You are trading a futures contract that requires an initial margin of 5% on the notional value of the future. What is the leverage that your margin position is effectively controlling vs. the notional value?
- 5 times your margin amount
- 10 times your margin amount
- There is no leverage involved
- The leverage cannot be determined
- 20 times your margin amount
- Suppose you buy an asset at $50 and sell a futures contract at $53. What is your profit at expiration if the asset price goes to $49? (Ignore carrying costs)
- -$1
- -$4
- $3
- $4
- none of the above
- Suppose you buy an asset at $70 and sell a futures contract at $72. What is your profit if, prior to expiration, you sell the asset at $75 and close the futures price at $78?
- -$1
- $2
- $1
- -$6
- none of the above
- Find the profit if the investor buys a July futures at 75, sells an October futures at 78 and then reverses the position by selling the July futures at 72 and buying the October futures at 77.
- -3
- -2
- 2
- 1
- none of the above
- The initial margin for an S&P 500 contract is 15% of the notional value, while the initial margin for a 10 year Treasury bond contract of similar notional size is 2%. What accounts for the difference in initial margin?
- The S&P 500 Index is more volatile than the 10 yr. T-Bill.
- The S&P 500 Index has a higher notional value than the 10 yr. T-bill.
- The contract size of the S&P 500 Index is larger than the 10 yr. T-bill.
- The price of the S&P 500 Index is much larger than the 10 yr. T-bill
- This is a mispricing that can be arbitraged away
- Suppose you observe the spot S&P 500 index at 2,910 and the three month S&P 500 index futures at 2,905. Based on carry arbitrage, you conclude
- this futures market is inefficient because the futures price is below the spot price
- this futures market is indicating that the spot price is expected to fall
- the spot price is too high relative to the observed futures price
- the dividend yield is higher than the risk-free interest rate
- none of the above
-
The manager of a blue chip growth stock mutual fund is trying to fully hedge the $15 million portfolio position during the last two months of the calendar year. The current price of the December S&P 500 Index futures contract is 3000. Recall that the multiplier on the e-mini S&P500 futures contract is 50. How many contracts will be needed to hedge the fund?
- 300
- 100
- 600
- 150
- None of the above
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