Question

1) Which of the following investments does require initial margin?

A. buying a call option

B. buying a put option

C. buying a futures contract

D. none of the above

2) If the underlying asset has a current market price of $40 and the strike price on an option contract on that asset is $45, then:

A. the option is in-the-money if it is a put option

B. the option has $5 of intrinsic value if it is a call option

C. the option has $5 time value if it is a put option

D. all of the above

3) To settle a long call position that is exercised at expiry, you would:

A. receive a cash amount equal to the asset price minus the option strike price

B. pay the strike price and receive the underlying asset

C. both (A) and (B) are possible

D. none of the above

4) Which of the following investments does require initial margin?

A. writing a call option

B. writing a put option

C. shorting a futures contract

D. all of the above

5) If the underlying asset has a current market price of $40 and the strike price on an option contract on that asset is $45, then:

A. the option is in-the-money if it is a call option

B. the option has $0 of intrinsic value if it is a call option

C. the option has $5 time value if it is a call option

D. none of the above

6) If the underlying asset has a current market price of $40 and the strike price on an option contract on that asset is $45, then:

A. the option is in-the-money if it is a put option

B. the option has $0 of intrinsic value if it is a call option

C. the option has $5 intrinsic value if it is a put option

D. all of the above

7) Which of the following investments does NOT require initial margin?

A. writing a call option

B. buying a put option

C. writing a futures contract

D. none of the above, they all do require initial margin

8) Suppose you buy a futures contract on an asset with a futures price of $50. At expiry of the futures contract the market price of the asset is $45:

A. the contract is out-the-money and you would not exercise

B. the contract is in-the-money and you would make a profit

C. the contract is in-the-money, but we don’t know if the investment made a profit or loss without knowing the original premium at the time of the trade

D. you would make a loss on the investment

Answer 1

1)

Which of the following investments does require initial margin?

Option C is correct

Buying a Futures Contract

Explanation:

To buy a future contract on needs to put initial margin, for buying option only premium is paid

2)

If the underlying asset has a current market price of $40 and the strike price on an option contract on that asset is $45, then:

Option A is correct.

the option is in-the-money if it is a put option

Explanation:

Put option is in the money if exercise price is higher than spot price.

3)

To settle a long call position that is exercised at expiry, you would:

Option C is correct.

both (A) and (B) are possible

Explanation:

Call option gives the right to buy the stock at a specified price at expiration, so one can either buy the stock or exchange the amount equal to difference in asset price and strike price.

4)

Which of the following investments does require initial margin?

Option D is correct.

all of the above

Explanation:

Writing of option and taking any position in futures contract requires margin.