problem1. Which of the following is NOT true?
A) When a CBOE call option on IBM is exercised, IBM issues more stock
B) An American option can be exercised at any time throughout its life
C) A put option will always be exercised at maturity if the strike price is greater than the underlying asset price
D) An call option will always be exercised at maturity if the underlying asset price is greater than the strike price
problem2. The price of a stock on February 1 is $48. A trader sells 200 put options on the stock with a strike price of $40 when the option price is $2. The options are exercised when the stock price is $39. The trader's net profit or loss is
A) Loss of $200
B) Loss of $800
C) Loss of $900
D) Gain of $200
problem3. Which of the following is NOT true?
A) Futures contracts nearly always last longer than forward contracts
B) Futures contracts are standardized; forward contracts are not
C) Delivery or final cash settlement basically takes place with forward contracts; the same is not true of futures contracts
D) Forward contracts basically have one specified delivery date; futures contract over and over again have a range of delivery dates
problem4. A company enters in the long futures contract to buy 1,000 units of a commodity for $60 per unit. The initial margin is $6,000 and the maintenance margin is $4,000. What futures price will allow $2,000 to be withdrawn from the margin account?
problem5. The basis is defined as spot minus futures. A trader is hedging the sale of an asset with the short futures position.
The basis rises unexpectedly. Which of the following is true?
A) The hedger's position worsens
B) The hedger's position improves
C) The hedger's position stays the same
D) The hedger's position sometimes worsens and sometimes improves