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Test Prep CFA-Level-I Exam
CFA® Level I Chartered Financial Analyst (Page 157 )

Updated On: 11-Jan-2026
Page 157 of 793
PDF with 3963 Questions

Mark Waiters' risk aversion is relatively high compared to other individual investors. Waiters is interested in generating some income on his equity portfolio. Walters decides to establish a covered call position on CGF stock and simultaneously establish a protective put position on HSD stock. After establishing the covered call

and protective put positions, which of the following would least likely describe Walters' portfolio, relative to the positions before adding the options?

  1. The HSD position will have a higher break even price and less downside risk.
  2. The CGF position will have a lower break even price and more upside potential.
  3. The HSD position will have lower upside potential and less downside risk.

Answer(s): B



In futures markets, the role of the clearing house is to:

  1. prevent arbitrage and enforce federal regulations.
  2. act as guarantor to both sides of a futures trade.
  3. reduce transaction costs by making contract prices public.

Answer(s): B



Morgan Dexter has been asked by his supervisor to present the features of interest rate swaps to a group of newly hired risk managers. In his presentation, Dexter notes that in a plain-vanilla interest rate swap, there is one floating rate-payer and one fixed-rate payer. Dexter points out that the netting arrangements typical to plain vanilla swaps reduce the credit risk for both counter parties Dexter also states that some interest rate swaps may have two floating rate payers. Are Dexter *s statements regarding swaps correct or incorrect?

  1. Only Dexter's statement about reduced credit risk from netting is correct.
  2. Only Dexter's statement about two floating rate payers is correct.
  3. Both statements are correct.

Answer(s): C



Debbie Chon, CFA, is evaluating a put option on Lincoln Industrial. Lincoln's current stock price is $64 per share and the company will pay a $0.56 dividend. The 90-day U.S. Treasury bill is yielding 5.3%. Lincoln's 3- month European call option with a strike price of $70 has a premium of $3.50. Based on the put-call parity, calculate the value of the associated Lincoln put option.

  1. $8.05
  2. $8.60
  3. $9.15

Answer(s): C

Explanation:



Peter Black is an options trader for High Smith Investments. Black trades options on the U.S. and U.K. stock exchanges. Over the past three weeks, Black has been following the price movements of options on two companies: U.S.-based Pacific Chemicals Inc. (PCI), and U.K.-based Merchant Clothing Co. (MCC). Black has observed that over the past few days, the price of put options on PCI stock have suddenly increased, and the price of call options on MCC stock have suddenly increased. Which of the following provides the most accurate explanation of Black's observations? Interest rates in:

  1. the U.S. have risen and the volatility of MCC stock has risen.
  2. the U.K. have fallen and the volatility of PCI stock has risen.
  3. the U.S. have fallen and the volatility of MCC stock has risen.

Answer(s): C



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