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Question:
If the margin account balance falls below the maintenance margin level, the account must be brought back up to the initial margin amount.
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A financial instrument with a payoff that depends on a specified event occurring is most accurately described as:
a contingent claim.
Roland Carlson owns a portfolio of large capitalization stocks. Carlson has a positive long-term outlook for the stock market, but would like to protect his portfolio from any sudden declines in the stock market, without selling his holdings. The most likely way for Carlson to achieve his objective of limiting the downside risk of his portfolio is to:
sell an S&P 500 futures contract.
Which of the following is least likely an example of a forward commitment?
A call option
Which of the following factors least likely affects the spot price of an asset that entails no costs nor offers any benefits?
The price recently paid by other investors.
1212At time t, prior to its settlement date at time , the value V of a long forward with a price of F will be related to the spot price, S, of an asset that has a zero net cost of carry by:
1212
During the life of a European option, the amount by which its price is greater than its exercise value is most accurately described as its:
time value.
The put-call-forward parity relationship is similar to the standard put-call parity relationship with a forward price substituted for:
the underlying asset.
The time value of a put option on an asset that provides no cash flows would most likely be increased by:
an increase in the asset’s price volatility.
An investor writes a covered call with a strike price of $44 on a stock selling at $40 for a $3 premium. The range of possible payoffs to the writer of this covered call on the combined position is:
-$37 to $7.
Janet Powers writes a covered call on a stock she owns, Billings, Inc. The current price of the stock is $45, and Powers writes the call at a strike price of $50. The call option premium is $3.50. Which of the following statements regarding Powers’s covered call strategy is most accurate?
Powers is trading the stock’s upside potential in exchange for current income.
Which of the following statements about plain vanilla interest rate swaps is most accurate? The swap counterparties:
exchange fixed rate payments for variable rate payments.
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