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Answer 7 of 8 sections made up of three multiple choice pages and 5 essay/problem sections. Multiple
choice
questions count off 2 points each, and each section of essay/problems is worth 14 points.
1) A "long" position in a futures contract is an agreement to I)____, while a "short" position in a futures
contract is an
agreement to II)____.
e. I) sell....II) speculate
2) Long positions in debt-based futures are likely to make money when I)___________ and long
positions in stock
3) If the stock market rises by the normal amount (approximately 10% next year, a speculator who is
long the S&P 500
a. being long Value Line futures and short S&P 500 futures
b. being short Value Line futures and long S&P 500 futures
c. being long Mar. T-bond futures and short June T-bond futures
d. being long Mar. T-bill futures and short June T-bond futures
e. being long cash market stocks and short June T-bond futures
5) Which of the following is applicable to forward contracts but not to futures contracts?
market platinum is selling for $400, and that the one-yr. T-bill rate is 5%? T
futures contracts.
9)
very upset.
delivery date.
11) How could you expect to profit in the futures market if you had
the cost of refining crude oil to produce gasoline and fuel oil?
14) True False The value of a "tick" for the S&P 500 futures
contract is $250.
contracts?
honored.
market
a. T-bill futures b. T-note futures c. stock index futures, or a long position in d. T-bill futures e. T-note
futures f.
approximately equal to
21) If the beta of a $20 million portfolio is 1.2 and you wish to fully hedge this portfolio with S&P 500
futures trading
for 1000, you should use approximately $____ million worth of contracts.
IV.
V.
(4 points)
(4 points)
VI.
Explain how one might use stock index futures (including the Russell 2000) to play the “January
Effect” defined as small stocks outperforming large cap stocks in Jan. When should one enter and
exit? What contracts? What delivery (expiration) dates? (2 pts. for each of the previous three
questions.)
Using the stock index futures quotes provided, design and explain how your strategy for playing the
January Effect might work, using a numerical example that discusses how the no. of each contract is
determined, and how much profit might be made in a “normal” year.
VII.
B. 6 points If the cash S&P 500 is 800, the one-yr out S&P 500
is 832, the dividend rate on the S&P 500 is 2% of the cash index, and the one-yr. T-bill rate is 5%,
explain what return an investor would make who did a cash and carry (buy) program trade. Assume
that the investor invests his/her own money rather than borrowing the funds to finance the purchase
of stocks.
B. 8 points
Tic
A2) 7 points - Define speculation and hedging, and explain how and why a hedge is used by giving
that the yield curve would become flat by December 1985. Use
III.
commodity spread.
not.
a. arbitragers will buy cash market gold and short gold futures
b. arbitragers will buy cash market gold and go long gold futures c. arbitragers will short cash
d. arbitragers will short cash market gold and go long gold futures
interest" is.
money-making scheme?
______________________
e. would buy stocks and short stock index futures when the
91 days - 4.00%
8. Over the last several months the British pound has moved from
pounds per dollar. During the same period the dollar traded
decimal places.)
conditions described.
A.
The S&P index closed last Friday at 209.94, while the March
three months left until delivery of the March contract and that
implied yield to an investor who buys the stocks in the S&P index
you to change your mind and act. Discuss the pros and cons of
your advice, along with any potential problems that might foil
your strategy.
B.
C.
basis points above the Treasury rate for comparable maturitiesvests primarily in fixed rate
mortgages.
points above the T-bill rate, but can issue 5 to 10 year debt at
loans.
D.
1. Define and explain the "MOB" spread, what it is, and when it
should work.
4. If the Mark is trading for $.40 in the cash market and $.42 in
E.
1. If the Canadian dollar can be bought for $.75 and the French
18) The yield curve is almost flat now, but you expect it to become normal in the near future. Which
of the following strategies is more likely to make money regardless of whether the yield curve
originally contracted at a price of 98-16, the price paid by the long at delivery (ignoring accrued
interest) will be
possible?