BADM 710 Final Exam 2025-2026 most recent
version Comprehensive 125 questions and
verified answers accurate solutions Already
graded A+ Get it 100% correct
A _____ is a derivative security that gives the owner the right, but not the obligation, to
buy an asset at a fixed price for a specified period of time - CORRECT ANSWER: Call
option
A 3-month futures contract on gold is priced at $1,200 per troy ounce when the contract
is initiated. If the price of gold rises every day over the 3-month period, then when the
contract is settled, the buyer will _____ and the seller will _____ - CORRECT ANSWER:
Gain; lose
A bond manager who wishes to hold the bonds with the greatest potential price volatility
should acquire - CORRECT ANSWER: Long-term, zero-coupon bonds
A European option may be exercised anytime up to and including the expiration date -
CORRECT ANSWER: False (A European option may be exercised only on the
expiration date.)
A financial contract that provides its owner with the right, but not the obligation, to buy or
sell a specified asset at an agreed-upon price on or before a given future date is called
a(n) _____ contract - CORRECT ANSWER: Option
A financial institution can hedge its interest rate risk by - CORRECT ANSWER:
Matching the duration of its assets, weighted by the market value of its assets with the
duration of its liabilities, weighted by the market value of its liabilities
A financial institution has equity equal to one-tenth of its assets. If its asset duration is
currently equal to its liability duration, then to immunize, the firm needs to - CORRECT
ANSWER: Decrease the duration of its assets
,A forward contract is described as agreeing today to either purchase or sell an asset or
security - CORRECT ANSWER: At a later date at a price set today
A miller who needs wheat to mill into flour most likely uses the futures market for taking
a - CORRECT ANSWER: Long hedge position to lock in production costs
A potential disadvantage of forward contracts versus futures contracts is - CORRECT
ANSWER: The higher incentive for a particular party to default
A put option on ABC stock with an exercise price of $35 expires today. The current price
of ABC stock is $36. The put is - CORRECT ANSWER: Out of the money
A security issued in the United States that represents shares of a foreign stock and
allows that stock to be traded in the United States is called a(n) - CORRECT ANSWER:
American Depository Receipt
A swap is an arrangement for two counterparties to - CORRECT ANSWER: Exchange
cash flows over time
An agreement to exchange currencies at some point in the future using an exchange
rate agreed upon today is called a _____ trade - CORRECT ANSWER: Forward
An agreement to trade currencies based on the exchange rate set today for settlement
within two business days is called a(n) _____ trade - CORRECT ANSWER: Spot
An in-the-money put option is one that - CORRECT ANSWER: Has an exercise price
greater than the underlying stock price
An in-the-money put option is one that - CORRECT ANSWER: Has an exercise price
greater than the underlying stock price
, An option that may be exercised only on the expiration date is called a(n) _____ option -
CORRECT ANSWER: European
An out-of-the-money call option is best defined as an option that - CORRECT ANSWER:
Should not be exercised
An out-of-the-money call option is best defined as an option that - CORRECT ANSWER:
Should not be exercised at this time
At expiration, the maximum price of a ____ is the greater of the - CORRECT ANSWER:
Call; stock price minus the exercise price, or 0
Calculate the duration of a $1,000 zero-coupon bond with a current price of $455.59, a
maturity of 6 years, and a yield to maturity of 14 percent - CORRECT ANSWER: The
duration of a zero-coupon bond equals to its maturity: 6 years
Comparing long-term bonds with short-term bonds, long-term bonds are _____ volatile
and therefore experience _____ price change than short-term bonds for the same
interest rate shift - CORRECT ANSWER: More; more
Derivatives can be used to either hedge or speculate. These strategies - CORRECT
ANSWER: Offset risk by hedging and increase rick by speculating
Futures contracts - CORRECT ANSWER: Are standardized
Hi-Tech announces a major expansion which causes the price of its stock to increase
and also causes an increase in the volatility of the stock price. How will these two
market reactions affect the value of call options on Hi-Tech stock? - CORRECT
ANSWER: Both reactions increase the value of the call options
version Comprehensive 125 questions and
verified answers accurate solutions Already
graded A+ Get it 100% correct
A _____ is a derivative security that gives the owner the right, but not the obligation, to
buy an asset at a fixed price for a specified period of time - CORRECT ANSWER: Call
option
A 3-month futures contract on gold is priced at $1,200 per troy ounce when the contract
is initiated. If the price of gold rises every day over the 3-month period, then when the
contract is settled, the buyer will _____ and the seller will _____ - CORRECT ANSWER:
Gain; lose
A bond manager who wishes to hold the bonds with the greatest potential price volatility
should acquire - CORRECT ANSWER: Long-term, zero-coupon bonds
A European option may be exercised anytime up to and including the expiration date -
CORRECT ANSWER: False (A European option may be exercised only on the
expiration date.)
A financial contract that provides its owner with the right, but not the obligation, to buy or
sell a specified asset at an agreed-upon price on or before a given future date is called
a(n) _____ contract - CORRECT ANSWER: Option
A financial institution can hedge its interest rate risk by - CORRECT ANSWER:
Matching the duration of its assets, weighted by the market value of its assets with the
duration of its liabilities, weighted by the market value of its liabilities
A financial institution has equity equal to one-tenth of its assets. If its asset duration is
currently equal to its liability duration, then to immunize, the firm needs to - CORRECT
ANSWER: Decrease the duration of its assets
,A forward contract is described as agreeing today to either purchase or sell an asset or
security - CORRECT ANSWER: At a later date at a price set today
A miller who needs wheat to mill into flour most likely uses the futures market for taking
a - CORRECT ANSWER: Long hedge position to lock in production costs
A potential disadvantage of forward contracts versus futures contracts is - CORRECT
ANSWER: The higher incentive for a particular party to default
A put option on ABC stock with an exercise price of $35 expires today. The current price
of ABC stock is $36. The put is - CORRECT ANSWER: Out of the money
A security issued in the United States that represents shares of a foreign stock and
allows that stock to be traded in the United States is called a(n) - CORRECT ANSWER:
American Depository Receipt
A swap is an arrangement for two counterparties to - CORRECT ANSWER: Exchange
cash flows over time
An agreement to exchange currencies at some point in the future using an exchange
rate agreed upon today is called a _____ trade - CORRECT ANSWER: Forward
An agreement to trade currencies based on the exchange rate set today for settlement
within two business days is called a(n) _____ trade - CORRECT ANSWER: Spot
An in-the-money put option is one that - CORRECT ANSWER: Has an exercise price
greater than the underlying stock price
An in-the-money put option is one that - CORRECT ANSWER: Has an exercise price
greater than the underlying stock price
, An option that may be exercised only on the expiration date is called a(n) _____ option -
CORRECT ANSWER: European
An out-of-the-money call option is best defined as an option that - CORRECT ANSWER:
Should not be exercised
An out-of-the-money call option is best defined as an option that - CORRECT ANSWER:
Should not be exercised at this time
At expiration, the maximum price of a ____ is the greater of the - CORRECT ANSWER:
Call; stock price minus the exercise price, or 0
Calculate the duration of a $1,000 zero-coupon bond with a current price of $455.59, a
maturity of 6 years, and a yield to maturity of 14 percent - CORRECT ANSWER: The
duration of a zero-coupon bond equals to its maturity: 6 years
Comparing long-term bonds with short-term bonds, long-term bonds are _____ volatile
and therefore experience _____ price change than short-term bonds for the same
interest rate shift - CORRECT ANSWER: More; more
Derivatives can be used to either hedge or speculate. These strategies - CORRECT
ANSWER: Offset risk by hedging and increase rick by speculating
Futures contracts - CORRECT ANSWER: Are standardized
Hi-Tech announces a major expansion which causes the price of its stock to increase
and also causes an increase in the volatility of the stock price. How will these two
market reactions affect the value of call options on Hi-Tech stock? - CORRECT
ANSWER: Both reactions increase the value of the call options
