Free CMA Exam Braindumps (page: 157)

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An automobile compare Thai uses me futures market to set the price Of steel to Protect a profit against price increases is an example of

  1. A short hedge.
  2. A long hedge.
  3. Selling futures to protect the company from loss.
  4. Selling futures to protect against price declines.

Answer(s): B

Explanation:

A change in prices can be minimize or avoided by hedging. Hedging is the process of using offsetting commitments to cupric or avoid the impact of adverse price movements. The automobile company desires to stabilize the price of steel SG that its cost to the- company will not nose and cut into profits, According the automobile company uses the futures market to create a long hedge, which is a futures contract that is purchased to protect against pence increases.



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If a corp4ration holds a forward contract for the dear, of US. Trashy bonds son 6 months and, during those 6 months, interest rte dine. at the end f the 6 months U value vf me rowed cacti have

  1. Depressed
  2. Increased.
  3. Remained constant,
  4. Any of the answers may be correct, depending on the extent of the decline in interest rates.

Answer(s): A

Explanation:

Interest rate futures contracts airwave risk-free bonds, such as U.S. Treasury bonds When I interest rates decrease over the pentode a forward contract, the value of the bonds and the forward contract increase



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A company wishes to price a call option written on a nod Mend. paying stock. The current stock pence is $50, the exercise price is $4$. the ask-.free interest rate is 5.0%, the option expires in 1 year, and the cumulative probabilities used to calculate the present values of the final stock price and the exercise price are .65 and 58. respectively, The company uses the 8lack-Scholes Option Pricing Model. It e( is 9515, the current value of the call option is

  1. $6.02
  2. $46
  3. $402
  4. $200

Answer(s): A

Explanation:



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How math must the stock b wolf at .spirant in order for a II homer to break even f the eerie price is $60 and the call premium was $3?

  1. $57.00
  2. $6000
  3. $61.50
  4. $63.00

Answer(s): D

Explanation:

Because the call premium is $3, the stock pence must be at least $63 ($60 exercise price + $31 cat premium).



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