QUESTION: 178 Topic 3: Part 2 Sec Three (101 to 203)

The use of devolves to either hedge or speculate rhesus in

Increased risk regardless of motives
Decreased risk regardless of motive.
Offsetting risk when hedging and increased ask when speculating.
Offsetting risk when speculating and increased risk when hedging.

Answer(s): C

Explanation:

Derivatives, including options and futures, are contracts between the parties who contract Unlike stocks and bonds, they are not claims on business assets A futures contract is entered into as either a speculation or a hedge Speculation aardwolves the assumption of risk in the hope of gaining from price movements Hedging is the process of using offsetting commitments to minimize or avoid the impact of adverse price movements.

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QUESTION: 179 Topic 3: Part 2 Sec Three (101 to 203)

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A forward contract involves a commitment today to purchase a woodcut

On a specific future date at a price to be determined some time in the future.
At some time during the current day at its present price.
On a specific future date at a price determined today.
On Pen its price increases above its current exercise pence.

Answer(s): C

Explanation:

A forward contract is an executor contract in which the parties involved agree to the terms of a purchase and a sale, but performance is deferred. Accordingly, a forward

contract involves a commitment today to purchase a product on a specific future date at a price determined today

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QUESTION: 180 Topic 3: Part 2 Sec Three (101 to 203)

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AA Company has purchased one share of QQ Company common stock and one put option. It has also sold one call option. The options are vented on one share of 00 Company common stock and have the same maturity date and exercise price. The exercise price ($40) is the same as the share price. Moreover, the options are exercisable only at the expiration date. Assume that the value of a share of (Xi Company common stock at the expiration date is either $30 or $45. The difference in the net payoff on the portfolio because of a difference in the stock price at the maturity date is

$10.00
$7.50
$500
$0

Answer(s): D

Explanation:

The stock price at the maturity date is $30, AA Compare' will have a share of stock worth $30 and a put option worth $10 ($40 exercise price -- $30 stock Price). The call option will be worthless Hence, the net payoff is $40 ($30 + $10). 11 the stock price at the maturity date is $45. the share of stock villa be worth $45, the put will be worthless, and the loss on the call will be $5 ($45 -- $40) Thus, the net payoff ll be $40 ($45 -- $5) Consequents the difference in the net payoff on the portfolio because of a difference in the stock price at the maturity date is $0 ($40 -- $40) 1The portfolio has the same value at the maturity date regardless of the price of the stock.

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QUESTION: 181 Topic 3: Part 2 Sec Three (101 to 203)

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AA Company has purchased one share of QQ Company common stock and one put option. It has also sold one call option. The options are written on one share of QQ Company common stock and have the same maturity date and exercise price. The exercise price ($40) is the same as the share price. Moreover, the options are exercisable only at the expiration date. Assuming the present value of the exercise price is $36 and the value of the call is $4.50. the value of the put in accordance with the put-call panty theorem is

$450
$400
$50
$0

Answer(s): C

Explanation:

For European options, given market equilibrium for all relevant prices (no arbitrage possibilities), equal exercise prices for the put and the call, and the same expiration date, the put-call panty theorem states that a fixed relationship applies to the market values of the put and café options on a security, For example, a strata of selling one call option, burin One share of the stock, and baring one put option should result in a risk-free rum. The gain (loss) from the stock and the put should equal the gain (loss) on the call It VS is the value of the tock, VP is the v1u of the put, VC is the value of the tall, and PVE is the present value of the exercise price (the time retrieval is the time to expiration), tie formula for put-call panty may be stated as follows:

According, the value of the put is $50 ($36 + $450 -- $40).

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Free CMA Exam Braindumps (page: 156)

QUESTION: 178 Topic 3: Part 2 Sec Three (101 to 203)

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QUESTION: 179 Topic 3: Part 2 Sec Three (101 to 203)

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QUESTION: 180 Topic 3: Part 2 Sec Three (101 to 203)

Explanation:

QUESTION: 181 Topic 3: Part 2 Sec Three (101 to 203)

Explanation: