Financial Instruments Paper 9

1

A company has recently purchased some stock of a competitor as part of a long-term plan to acquire the competitor. However, it is somewhat concerned that the market price of this stock could decrease over the short run. The company could hedge against the possible decline in the stock’s market price by






2

When a firm finances each asset with a financial instrument of the same approximate maturity as the life of the asset, it is applying






3

A distinguishing feature of a futures contract is that






4

The owner of a call option wants to know the respective effects on the call’s price of a decrease in stock-return volatility and a decrease in time to expiration. The respective effects on the call’s price are which of the following? Decrease in Stock-Return Volatility Decrease in Time to Expiration






5

An investor wrote a $45 call option and bought a $50 put option, both of which had the same time to expiration. On the transaction date, the stock price was $45, and the prices for the call and put options were $8 and $10, respectively. Subsequently, the stock price fell by $10, where it remained through the option expiration date. As of the expiration date, the total profit on the combined option position, ignoring commissions and other transactions, is






6

A major homebuilder will use lumber to build a large development of homes next year. If the homebuilder plans to buy the lumber next year, it can hedge its future costs if it






7

If a corporation’s stock price experiences increased volatility, what would happen to the value of the call options and the put options on the corporation’s stock?






8

Which one of the following is not a characteristic of a negotiable certificate of deposit? Negotiable certificates of deposit






9

In smaller businesses in which the management of cash is but one of numerous functions performed by the treasurer, various cost incentives and diversification arguments suggest that surplus cash should be invested in






10

When managing cash and short-term investments, a corporate treasurer is primarily concerned with






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