IMANET IMANET Certifications IMANET-CMA Questions & Answers

• Question 611:

  Which of the following is exercisable on at the expiration date?

  A. Coleopteran.

  B. European opinion

  C. American option.

  D. Put option.

  Correct Answer: B

  An American option is a contractual arrangement that gives the owner the right to buy or sell an asset at a fixed pence at ark moment in flume before or on a specified date. A European option is exercisable one at the expiration date

• Question 612:

  If a corp4ration holds a forward contract for the dear, of US. Trashy bonds son 6 months and, during those 6 months, interest rte dine. at the end f the 6 months U value vf me rowed cacti have

  A. Depressed

  B. Increased.

  C. Remained constant,

  D. Any of the answers may be correct, depending on the extent of the decline in interest rates.

  Correct Answer: A

  Interest rate futures contracts airwave risk-free bonds, such as U.S. Treasury bonds When I interest rates decrease over the pentode a forward contract, the value of the bonds and the forward contract increase

• Question 613:

  AA Company has purchased one share of QQ Company common stock and one put option. It has also sold one call option. The options are written on one share of QQ Company common stock and have the same maturity date and exercise price. The exercise price ($40) is the same as the share price. Moreover, the options are exercisable only at the expiration date. Assuming the present value of the exercise price is $36 and the value of the call is $4.50. the value of the put in accordance with the put-call panty theorem is

  A. $450

  B. $400

  C. $50

  D. $0

  Correct Answer: C

• Question 614:

  An automobile compare Thai uses me futures market to set the price Of steel to Protect a profit against price increases is an example of

  A. A short hedge.

  B. A long hedge.

  C. Selling futures to protect the company from loss.

  D. Selling futures to protect against price declines.

  Correct Answer: B

  A change in prices can be minimize or avoided by hedging. Hedging is the process of using offsetting commitments to cupric or avoid the impact of adverse price movements. The automobile company desires to stabilize the price of steel SG that its cost to the- company will not nose and cut into profits, According the automobile company uses the futures market to create a long hedge, which is a futures contract that is purchased to protect against pence increases.

• Question 615:

  AA Company has purchased one share of QQ Company common stock and one put option. It has also sold one call option. The options are vented on one share of 00 Company common stock and have the same maturity date and exercise price. The exercise price ($40) is the same as the share price. Moreover, the options are exercisable only at the expiration date. Assume that the value of a share of (Xi Company common stock at the expiration date is either $30 or $45. The difference in the net payoff on the portfolio because of a difference in the stock price at the maturity date is

  A. $10.00

  B. $7.50

  C. $500

  D. $0

  Correct Answer: D

  The stock price at the maturity date is $30, AA Compare' will have a share of stock worth $30 and a put option worth $10 ($40 exercise price -- $30 stock Price). The call option will be worthless Hence, the net payoff is $40 ($30 + $10). 11 the stock price at the maturity date is $45. the share of stock villa be worth $45, the put will be worthless, and the loss on the call will be $5 ($45 -- $40) Thus, the net payoff ll be $40 ($45 -- $5) Consequents the difference in the net payoff on the portfolio because of a difference in the stock price at the maturity date is $0 ($40 -- $40) 1The portfolio has the same value at the maturity date regardless of the price of the stock.

• Question 616:

  The use of devolves to either hedge or speculate rhesus in

  A. Increased risk regardless of motives

  B. Decreased risk regardless of motive.

  C. Offsetting risk when hedging and increased ask when speculating.

  D. Offsetting risk when speculating and increased risk when hedging.

  Correct Answer: C

  Derivatives, including options and futures, are contracts between the parties who contract Unlike stocks and bonds, they are not claims on business assets A futures contract is entered into as either a speculation or a hedge Speculation aardwolves the assumption of risk in the hope of gaining from price movements Hedging is the process of using offsetting commitments to minimize or avoid the impact of adverse price movements.

• Question 617:

  A forward contract involves a commitment today to purchase a woodcut

  A. On a specific future date at a price to be determined some time in the future.

  B. At some time during the current day at its present price.

  C. On a specific future date at a price determined today.

  D. On Pen its price increases above its current exercise pence.

  Correct Answer: C

• Question 618:

  A contractual arrangement that gives the owner the right to buy or sail an asset at a hexed price at any moment in time before r on a specified date is a (n)

  A. European option.

  B. Foreign option,

  C. Future option.

  D. American option.

  Correct Answer: D

  An American upon is a contractual arrangement that gives the owner the right to buy or sell an asset at a axed price at any moment in time before or on a specified date.

• Question 619:

  The type of open that does not have the barong of stock is called a(n)

  A. Covered option,

  B. Unsecured option.

  C. Naked option

  D. Put option.

  Correct Answer: C

  A naked or uncovered option is a call option that does not have the backing of stock. Thus, the option writer will have to purchase the underling stock if the call option is exercised.

• Question 620:

  If a call option is "out-of-the-money"

  A. It is not worth exercising.

  B. The value of the underlying asset is less than the exercise price.

  C. The option no longer exists

  D. It is not worth exercising, and the value of the underlying asset is less than the exercise pence

  Correct Answer: D

  When the value of the asset underlying a call option is less man the exercise pence of me the option is out-of the-money, witch means it is not worth exercising.