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Question
Covered call writing ____ the upside potential return and ____ the risk of an investment in stock.
a. increases; increases
b. increases; decreases
c. limits; increases
d. limits; decreases
Answer
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Related questions
Q:
A speculator purchases a put option on Treasury bond futures with a September delivery date with an exercise price of 85-00. The option has a premium of 2-00. Assume that the price of the futures contract decreases to 82-00 on the expiration date and the option is exercised at that point (if it is feasible). What is the net gain?
a. $1,968.75
b. $3,750.00
c. $3,000.00
d. -$2,000.00
e. $1,000.00
Q:
Which of the following can normally be found in quotations for stock options?
a. exercise price, expiration date, and implied volatility
b. exercise price, expiration date, and most recently quoted premium
c. expiration date, implied volatility, and trading volume
d. expiration date, most recently quoted premium, and implied volatility
Q:
A speculator purchased a call option with an exercise price of $31 for a premium of $4. The option was exercised a few days later when the stock price was $34. What was the return to the speculator?
a. 25 percent
b. -25 percent
c. -3.2 percent
d. -2.9 percent
Q:
Speculators who anticipate a decline in interest rates may consider ________ option on Treasury bond futures.
a. purchasing a put option
b. selling a call option
c. purchasing a call option
d. None of these are correct.
Q:
A put option is "out of the money" when the
a. market price of the security exceeds the exercise price.
b. market price of the security equals the exercise price.
c. market price of the security is less than the exercise price.
d. premium on the option is less than the exercise price.
Q:
The writer of a put option is obligated to provide the specified financial instrument at the price specified by the option contract if the owner exercises the option.
a. True
b. False
Q:
When investors purchase an option that does not hedge their existing investments, the option can be referred to as "naked."
a. True
b. False
Q:
The results with covered call writing are better than the results without covered call writing both when the stock performs poorly and when it performs well.
a. True
b. False
Q:
Assume a corporation is receiving a large amount of funds in the near future. The company plans to use the funds to purchase municipal bonds. Also assume that the company is concerned that interest rates will decrease before the purchase date, which would make the municipal bonds more expensive. In order to hedge against this possibility, the company should ____ MBI futures contracts. If interest rates decrease, the futures contract will generate a ____.
a. sell; loss
b. purchase; gain
c. purchase; loss
d. sell; gain
e. None of these are correct.
Q:
A(n) ____ is a standardized agreement to deliver or receive a specified amount of a specified financial instrument at a specified price and date.
a. option contract
b. brokerage contract
c. financial futures contract
d. margin call
Q:
Assume that corporate bond portfolio managers are concerned about the possibility of many bond defaults resulting from a future recession. A short position in Treasury bond futures ____ an effective hedge against the credit (default) risk. A short position in Treasury bill futures ____ an effective hedge against the credit (default) risk.
a. would be; would be
b. would be; would not be
c. would not be; would not be
d. would not be; would be
Q:
A bank has $500 million in long-term assets and $400 million in long-term fixed-rate liabilities. If interest rates rise, the banks net exposure will be ________, assuming that the long-term assets and liabilities are similarly affected. Therefore the bank should focus on hedging the net exposure amount by creating a ______.
a. $100 million; short hedge
b. $100 million; long hedge
c. $900 million; short hedge
d. $900 million; long hedge
Q:
Speculators who normally close out their futures positions on the same day that the positions were initiated are referred to as
a. day traders.
b. hedgers.
c. closed-end traders.
d. position traders.
Q:
Speculators in futures contracts that normally maintain their futures positions for extended periods of time (such as weeks or months) are referred to as
a. day traders.
b. hedgers.
c. closed-end traders.
d. position traders.
Q:
Companies with international trade can hedge ____ by ____ currency futures.
a. payables; selling
b. receivables; buying
c. payables; buying
d. payables; selling AND receivables; buying
e. receivables; buying AND payables; buying
Q:
The main role of a futures exchange is to initiate buy positions on any futures contracts that it believes will increase in value over time.
a. True
b. False
Indicate the answer choice that best completes the statement or answers the question.
Q:
Purchasers of currency futures contracts are required to hold the contract until the settlement date and accept delivery of the foreign currency at that time.
a. True
b. False
Q:
Settlement of stock index futures contracts occurs through delivery of the underlying securities.
a. True
b. False
Q:
Stock index futures cannot be closed out before the settlement date.
a. True
b. False
Q:
The cost of carry, or net financing cost, to the purchaser of stock index futures refers to the brokerage commissions paid to the broker as a result of the purchase.
a. True
b. False
Q:
Financial futures contracts on stock indexes are referred to as interest rate futures.
a. True
b. False
Q:
Brokers commonly require margin deposits from their customers above those required by the exchanges.
a. True
b. False
Q:
Purchasers of financial futures contracts traded on an exchange know who the sellers are, and send a check directly to the seller at the time of the purchase.
a. True
b. False
Q:
Indicate whether the statement is true or false.Financial futures contracts are normally sold on a futures exchange, not over the counter.a. Trueb. False
Q:
Which of the following statements is incorrect?
a. In a short sale, investors place an order to sell a stock that they do not own.
b. Investors sell a stock short when they anticipate that its price will rise.
c. When investors sell short, they will ultimately have to provide the stock back to the investor from whom they borrowed it.
d. Short-sellers must make payments to the investor from whom the stock was borrowed to cover the dividend payments that the investor would have received if the stock had not been borrowed.
Q:
____ offer advice to customers on stocks to buy or sell.
a. Full-service brokers
b. Discount brokers
c. Floor brokers
d. Specialists
e. Market makers
Q:
When a brokerage firm demands more collateral from investors who have borrowed from the brokerage firm to buy stocks, it is making a
a. margin call.
b. short sale.
c. proxy fight.
d. hedge.
Q:
Under the present margin requirements, at least ____ percent of an investor's invested funds must be paid in cash.
a. 20
b. 30
c. 40
d. 50
e. None of these are correct.
Q:
____ may facilitate stock transactions by taking positions in specific stocks.
a. Board members
b. Capstone members
c. Market makers
d. None of these are correct.
Q:
A ____ is a trading platform on a computer website that allows investors to trade stocks without the use of a broker.
a. direct access broker
b. program trader
c. market maker
d. communication network