Part I. Multiple Choice (2.5 point each, 50 points in total) During th

QUESTION

Part I. Multiple Choice (2.5 point each, 50 points in total)
During the growing season a corn farmer sells short corn futures contracts in an amount equal to her crop. If upon harvesting and selling her crop she maintains the contracts, she is then considered a:
(a) Hedger
(b) Speculator
(c) Arbitrager
(d) None of the above
If the producer of a product has entered into a fixed price sale agreement for that output, the producer faces:
(a) a nice steady profit because the output price is fixed.
(b) an uncertain profit if the input prices are volatile.

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Part I. Multiple Choice (2.5 point each, 50 points in total)
During the growing season a corn farmer sells short corn futures contracts in an amount equal to her crop. If upon harvesting and selling her crop she maintains the contracts, she is then considered a:
(a) Hedger
(b) Speculator
(c) Arbitrager
(d) None of the above
If the producer of a product has entered into a fixed price sale agreement for that output, the producer faces:
(a) a nice steady profit because the output price is fixed.
(b) an uncertain profit if the input prices are volatile. This risk can be reduced by a short hedge.
(c) an uncertain profit if the input prices are volatile. This risk can be reduced by a long hedge.
(d) a modest profit if the input prices are stable. This risk can be reduced by a long hedge.
The spot price of the market index is $900. A 3-month forward contract on this index is priced at $930. The market index rises to $920 by the expiration date. The annual rate of interest on treasuries is 4.8% (0.4% per month). What is the difference in the payoffs between a long index investment and a long forward contract investment? (Assume monthly compounding and please consider time value of money.)
(a) $10.84
(b) $19.16
(c) $26.40
(d) $43.20
All of the positions listed will benefit from a price decline, except:
(a) Short put
(b) Long put
(c) Short call
(d) Short stock
2
Jeff opted to exercise his August stock option (U.S. exchange-listed) on August 10 and received $2,500 in exchange for his shares. Jeff must have owned a (an):
(a) American call.
(b) American put.
(c) European call.
(d) European put.
Jillian owns an option which gives her the right to purchase shares of WAN stock at a price of $20 a share. Currently, WAN stock is selling for $24.50. Jillian would like to profit on this stock but is not permitted to exercise her option for another two weeks. Which of the following statements apply to this situation?
Jillian must¦

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