1. Companies manage risk in may ways. Which of the following is NOT one of them.
- Use derivative contracts to reduce risk
- Transfer the function that produces the risk to a third party
- none of the above
- Minimize the magnitude of loss associated with adverse event
- Transfer the risk to an insurance company
2. Two companies are evaluating a possible swap. Company A can issue floating-rate debt at LIBOR + 1%, and it can issue fixed rate debt at 9%. Company B can issue floating-rate debt at LIBOR + 1.5%, and it can issue fixed-rate debt at 9.4%. If A issues floating-rate debt and B issues fixed-rate debt, and then they engage in the following swap: A will make a fixed 7.95% payment to B, and B will make a floating-rate payment equal to LIBOR to A. Which of the following statements is correct?
-The swap is advantageous to B, but not to A
- The swap is not advantageous to either A or B
- none of the above
- The swap is advantageous to A, but not to B
- The swap is advantageous to both A and B
3. "The June Treasury bond futures contract has a quoted price of 102'12. Are current market interest rates higher or lower than the standardized rate on a futures contract?
- higher, because the contract is selling at a discount
- lower, because the contract is selling at a premium
- higher, because the contract is selling at a premium
- None of the above answers is correct
- more information is required to answer this problem
4. The June Treasury bond futures contract has a quoted price of 102'12. What is the current value of one contract in dollars?
- none of the above
- 90,180
- 102,375
- 90,563
- 102,120
5. The June Treasury bond futures contract has a quoted price of 102'12. What is the current value of one contract in dollars?
- 5.80%
- 3.05%
- none of the above
- 2.90%
- 5.85%
6. The December Treasury bond futures contract has a quoted price of 95'18 and the implied interest rate is 3.2% (semiannual). If annual interest rates go up by 1.00 percentage point, what is
- none of the above
- $76,939
- $95,523
- $69,591
- $85,504
7. Six months ago, a December Treasure bond futures contract had a quoted price of 95'16. Now, the quoted price is 99'4. What is the gain or loss on the contract?
- none of the above
- Gain of $3625
- Loss, but cannot determine amount
- Loss of $3625
- Gain, but cannot determine amount
8. Which of the following are ways risk management can be used to increase the value of a firm?
- none of the above
- risk management will allow managers to defer income
- risk management will not affect taxes.
- risk management will change the capital structure of the company
9. Two basic types of hedges involving the futures markets are long hedges and short hedges. Which of the following is correct:
- all of the above
- none of the above
- both long and short hedges involve buying futures contracts
- a long hedge involves buying futures contracts
- a short hedge involves buying futures contracts
- both long and short hedges involve selling futures contracts
10. Which of the following is correct:
- A speculator who buys or sells futures contracts has an offsetting position in the spot market
- A speculator who sells futures contracts believes the price will increase
- A speculator who buys or sells futures contracts takes little risk
- none of the above
- A speculator who sells futures contracts believes the price will decrease