Question 1

You purchased four call option contracts with a strike price of $25.00 and a premium of $1.25.At expiration,the stock was selling for $26.80 a share.What is the total amount it cost you to acquire your shares?

Accepted Answer

Total cost = 400 × ($1.250 + $25.00) = $10,500

Question 2

You purchased six put option contracts with a strike price of $30 and a premium of $0.90.At expiration,the stock was selling for $26.80 a share.What is the total net amount you received for your shares,assuming that you disposed of your shares on the expiration date?

Accepted Answer

Net total amount = 600 × ($30 - $0.90) = $17,460

Question 3

What are the basic differences between a T-Bill and a T-Bond?
 Which security(ies)are considered risk-free?

Accepted Answer

The answer of What are the basic differences between a...

Question 4

Farmer Mac raises wheat.He expects his yield this summer to be 320,000 bushels but he decides to sell futures contracts on only 230,000 bushels.What is his logic for selling futures and why didn't he sell futures on his entire crop?

Accepted Answer

The answer of Farmer Mac raises wheat.He expects his yield...

Question 5

Why would you purchase a call option?
 What is your maximum profit or loss on such a position?

Accepted Answer

The answer of Why would you purchase a call option?
...

Question 6

Explain what a put option is and describe the circumstances under which you would be willing to sell a put.

Accepted Answer

The answer of Explain what a put option is and...

Question 7

You purchased six put option contracts with a strike price of $45 and a premium of $1.10. What is the total net amount you will receive for your shares if you exercise this contract when the underlying stock is selling for $42.90 a share?

Accepted Answer

Total net amount = 600 × ($45 - $1.10) = $26,340

Question 8

Preferred stock is sometimes considered to be a cross between debt and equity.Describe the characteristics of preferred stock that make it similar to debt as well as the characteristics that make it similar to equity.

Accepted Answer

The answer of Preferred stock is sometimes considered to be...

Question 9

You purchased 600 shares of SLG,Inc.stock at a price of $41.20 a share.You then purchased put options on your shares with a strike price of $45.00 and an option premium of $1.10.At expiration,the stock was selling for $48.30 a share.You sold your shares on the option expiration date.What is your net profit or loss your transactions related to SLG,Inc.stock?

Accepted Answer

Net profit = 600 × ($48.30 - $41.20 - $1.10) = $3,600

Question 10

You bought a put option contract with a strike price of $37.50 and a premium of $1.80.At expiration,the stock was selling for $35 a share.What is the net total amount you received for your shares assuming that you disposed of your shares on the expiration date?

Accepted Answer

Total net amount = 100 × ($37.50 - $1.80) = $3,570

Question 11

Alicia owns 500 shares of Danube stock.She thinks the market price will continue to rise but would like to ensure that she can get at least $47.50 a share should she decide to sell her shares. The 47.50 call option is quoted at $1.05 bid,$1.15 ask.The 47.50 put is quoted at $0.80 bid,$0.85 ask.How much will it cost her to ensure that she can sell all of her shares for at least $47.50 each?

Accepted Answer

Put premium = 500 × $.85 = $425

Question 12

You own 300 shares of stock which you would like to have the right to sell at $40 a share.The 40 call option is quoted at $0.35 bid,$0.40 ask.The 40 put is quoted at $0.45 bid,$0.50 ask.How much will it cost you to obtain the right to sell all of your shares at $40 a share?

Accepted Answer

Put option premium = 300 × $.50 = $150

Question 13

You bought five call option contracts with a strike price of $47.50 and an option premium of $1.20. At expiration,the stock was selling for $51.30 a share and you exercised your option.What is your total cost basis in the acquired shares?

Accepted Answer

Total cost = 500 × ($1.20 + $47.50) = $24,350

Question 14

Briefly compare and contrast options and futures.

Accepted Answer

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Quiz 3: Overview of Security Types