1. "The purpose of constructing a straddle is to profit if the underlying stock price changes dramatically either on the upside or the downside." True or false?

a. True b. False

2. "Based on modern portfolio theory, if the underlying asset for a futures contract has a positive beta, F0

a. True

b. False

3. Which of these are basic assumptions of the growing perpetuity present value formula?

I. The cash flow is the Time 0 cash flow.

II. The time periods are regular and discrete.

III. g < r IV. The number of time periods is finite.

I and II only

II and III only

I, II, and III only

II, III, and IV only

I, II, III, and IV