Devry FIN 351 Week 5 Quiz
Question 1
3 pts
(TCO 5) When is the best time to convert a convertible bond to common stock?
- The best time to convert is when the call price exceeds the conversion value.
- The best time to convert is after the conversion ratio decreases.
- The best time to convert is when the conversion value is below the pure bond value.
- None of the above
Question 2
3 pts
(TCO 5) Which is the conversion ratio of a $1,000 bond convertible at $30 per share? The coupon rate is 10% and the market rate 12%. This company’s common stock is currently trading at $24 per share.
- 18.52 shares
- 33.33 shares
- 66 shares
- 41.67 shares
Question 3
3 pts
(TCO 5) Which of the following is a characteristic of put and call options?
- They are contracts to buy or sell 100 shares of common stock.
- There is always a specified price.
- There is always a specified time period to exercise options.
- All of the above
Question 4
3 pts
(TCO 5) A major disadvantage of using call options to hedge a short position is that _____.
- hedging increases the risk of loss on the short sale.
- the option premium and commission reduce profit potential.
- the price of the stock may go up
- None of the above
Question 5
3 pts
(TCO 5) An investor who wishes to take advantage of a current stock price, but does not expect to have cash available until a specific date in the future, would probably use the _____ strategy to invest in options.
- hedging
- leverage
- guaranteed price
- None of the above
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Question 6
3 pts
(TCO 5) Examples of financial futures include _____.
- foreign exchange and interest rate futures
- gold and foreign currencies
- corporate bonds and common stock
- None of the above
Question 7
3 pts
(TCO 5) Which of the following statements about the margin requirements on commodities contracts is NOT true?
- Use of margin is less common than trading with actual cash dollars.
- They are generally much lower than those on stock transactions.
- It is merely a good faith payment against losses.
- None of the above
Question 8
3 pts
(TCO 5) The profit of an index option is determined by _____.
- the total value of the increase in the index
- the total value of the option
- the size of the premium
- More than one above
Question 9
3 pts
(TCO 5) The margin requirement will be lower than the standard requirement on a stock index futures contract when _____.
- the stock market is declining
- the futures are used to hedge a portfolio
- the investor is establishing a speculative position
- None of the above
Question 10
3 pts
(TCO 5) The loss on option purchase is always _____.
- limited to the premium paid
- limited to the margin maintenance requirement
- the difference between the strike price and the premium paid
- None of the above
