Test Bank for Derivatives Markets 3rd Edition by Robert McDonald
Test Bank for Derivatives Markets 3rd Edition by Robert McDonald
,Test Bank for Derivatives Markets 3rd Edition by Robert McDonald
Derivatives Markets, 3e (McDonald)
Chapter 1 Introduction to
Derivatives
1.1 Multiple Choice
1) Which of the following is not a derivative instrument?
A) Contract to sell corn
B) Option agreement to buy land
C) Installment sales agreement
D) Mortgage backed security
Answer: C
2) Who from the following list would be considered a speculator by entering into a futures or
options contract on commodities?
A) Farmer
B) Corn delivery truck driver
C) Food manufacturer
D) None of the above
Answer: B
3) A mutual fund is engaged in the short term and temporary purchase of index futures, for
purposes of minimizing its cash exposures. Which "use" most closely explains their actions?
A) Risk management
B) Speculation
C) Reduced transaction costs
D) Regulatory arbitrage
Answer: C
4) During the growing season, a corn farmer sells short corn futures contracts in an amount equal
to her crop. If upon harvesting and selling her crop she maintains the contracts, she is then
considered a(n):
A) Hedger
B) Speculator
C) Arbitrager
D) None of the above
Answer: B
5) All of the following are financially engineered products, except:
A) Mortgage
B) Mortgage backed security
C) Interest only
Test Bank for Derivatives Markets 3rd Edition by Robert McDonald
,Test Bank for Derivatives Markets 3rd Edition by Robert McDonald
D) Principal only
Answer: A
Test Bank for Derivatives Markets 3rd Edition by Robert McDonald
, Test Bank for Derivatives Markets 3rd Edition by Robert McDonald
6) Select the family member who is offering the most diversification to the rest of the family.
A) Dad works for General Motors
B) Mom works for Goodyear
C) Daughter works for Jiffy Lube
D) Son works for Eli Lilly & Company
Answer: D
7) What is the cost of 100 shares of Jiffy, Inc. stock given that the bid-ask prices are
$31.25 - $32.00 and a $15.00 commission per transaction exists?
A) $3215
B) $3140
C) $3125
D) $3200
Answer: A
8) Assume that you purchase 100 shares of Jiffy, Inc. common stock at the bid-ask prices of
$32.00 - $32.50. When you sell, the bid-ask prices are $32.50 - $33.00. If you pay a commission
rate of 0.5%, what is your profit or loss?
A) $0
B) $16.25 loss
C) $32.50 gain
D) $32.50 loss
Answer: D
9) Assume that you open a 100-share short position in Jiffy, Inc. common stock at the bid-ask
price of $32.00 - $32.50. When you close your position, the bid-ask prices are $32.50 - $33.00. If
you pay a commission rate of 0.5%, what is your profit or loss on the short investment?
A) $32.50 gain
B) $16.25 loss
C) $132.50 loss
D) $100.00 gain
Answer: C
10) Assume that you open a 100-share short position in Jiffy, Inc. common stock at the bid-ask
prices of $32.00 - $32.50. When you close your position, the bid-ask prices are $32.50 - $33.00.
You pay a commission rate of 0.5%. The market interest rate is 5.0% and the short rebate rate is
3.0%. What is your additional gain or loss due to leasing the asset?
A) $64.00 loss
B) $160.00 loss
C) $96.00 gain
D) $0
Answer: A
Test Bank for Derivatives Markets 3rd Edition by Robert McDonald
Test Bank for Derivatives Markets 3rd Edition by Robert McDonald
,Test Bank for Derivatives Markets 3rd Edition by Robert McDonald
Derivatives Markets, 3e (McDonald)
Chapter 1 Introduction to
Derivatives
1.1 Multiple Choice
1) Which of the following is not a derivative instrument?
A) Contract to sell corn
B) Option agreement to buy land
C) Installment sales agreement
D) Mortgage backed security
Answer: C
2) Who from the following list would be considered a speculator by entering into a futures or
options contract on commodities?
A) Farmer
B) Corn delivery truck driver
C) Food manufacturer
D) None of the above
Answer: B
3) A mutual fund is engaged in the short term and temporary purchase of index futures, for
purposes of minimizing its cash exposures. Which "use" most closely explains their actions?
A) Risk management
B) Speculation
C) Reduced transaction costs
D) Regulatory arbitrage
Answer: C
4) During the growing season, a corn farmer sells short corn futures contracts in an amount equal
to her crop. If upon harvesting and selling her crop she maintains the contracts, she is then
considered a(n):
A) Hedger
B) Speculator
C) Arbitrager
D) None of the above
Answer: B
5) All of the following are financially engineered products, except:
A) Mortgage
B) Mortgage backed security
C) Interest only
Test Bank for Derivatives Markets 3rd Edition by Robert McDonald
,Test Bank for Derivatives Markets 3rd Edition by Robert McDonald
D) Principal only
Answer: A
Test Bank for Derivatives Markets 3rd Edition by Robert McDonald
, Test Bank for Derivatives Markets 3rd Edition by Robert McDonald
6) Select the family member who is offering the most diversification to the rest of the family.
A) Dad works for General Motors
B) Mom works for Goodyear
C) Daughter works for Jiffy Lube
D) Son works for Eli Lilly & Company
Answer: D
7) What is the cost of 100 shares of Jiffy, Inc. stock given that the bid-ask prices are
$31.25 - $32.00 and a $15.00 commission per transaction exists?
A) $3215
B) $3140
C) $3125
D) $3200
Answer: A
8) Assume that you purchase 100 shares of Jiffy, Inc. common stock at the bid-ask prices of
$32.00 - $32.50. When you sell, the bid-ask prices are $32.50 - $33.00. If you pay a commission
rate of 0.5%, what is your profit or loss?
A) $0
B) $16.25 loss
C) $32.50 gain
D) $32.50 loss
Answer: D
9) Assume that you open a 100-share short position in Jiffy, Inc. common stock at the bid-ask
price of $32.00 - $32.50. When you close your position, the bid-ask prices are $32.50 - $33.00. If
you pay a commission rate of 0.5%, what is your profit or loss on the short investment?
A) $32.50 gain
B) $16.25 loss
C) $132.50 loss
D) $100.00 gain
Answer: C
10) Assume that you open a 100-share short position in Jiffy, Inc. common stock at the bid-ask
prices of $32.00 - $32.50. When you close your position, the bid-ask prices are $32.50 - $33.00.
You pay a commission rate of 0.5%. The market interest rate is 5.0% and the short rebate rate is
3.0%. What is your additional gain or loss due to leasing the asset?
A) $64.00 loss
B) $160.00 loss
C) $96.00 gain
D) $0
Answer: A
Test Bank for Derivatives Markets 3rd Edition by Robert McDonald
