1. 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.
   1. No leverage on the return on your equity portion of the investment
   2. 20 times on the return on your equity portion of the investment
   3. 20% on the return on of your equity portion of the investment
   4. 5 times on the return on your equity portion of the investment
   5. The effective leverage on return cannot be calculated from the information provided
2. If the initial margin is $5,000, the maintenance margin is $3,500 and your balance is $4,000, how much must you deposit?
   1. $6,000
   2. $1,500
   3. $9,000
   4. nothing
   5. none of the above
3. 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. $1,500
   2. $400
   3. $1,900
   4. 0
   5. none of the above
4. 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?
   1. 5 times your margin amount
   2. 10 times your margin amount
   3. There is no leverage involved
   4. The leverage cannot be determined
   5. 20 times your margin amount
5. 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. -$1
   2. -$4
   3. $3
   4. $4
   5. none of the above
6. 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. -$1
   2. $2
   3. $1
   4. -$6
   5. none of the above
7. 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.
   1. -3
   2. -2
   3. 2
   4. 1
   5. none of the above
8. 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?
   1. The S&P 500 Index is more volatile than the 10 yr. T-Bill.
   2. The S&P 500 Index has a higher notional value than the 10 yr. T-bill.
   3. The contract size of the S&P 500 Index is larger than the 10 yr. T-bill.
   4. The price of the S&P 500 Index is much larger than the 10 yr. T-bill
   5. This is a mispricing that can be arbitraged away
9. 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
   1. this futures market is inefficient because the futures price is below the spot price
   2. this futures market is indicating that the spot price is expected to fall
   3. the spot price is too high relative to the observed futures price
   4. the dividend yield is higher than the risk-free interest rate
   5. none of the above

10. 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?

    1. 300
    2. 100
    3. 600
    4. 150
    5. None of the above