Download Quiz 3 with Answers - Financial Institutions and Markets | FINA 365 and more Quizzes Financial Market in PDF only on Docsity! Question 1 A financial institution, that maintains some Treasury bond holdings, sells Treasury bond futures contracts. If interest rates increase, the market value of the bond holdings will _____ and the position in futures contracts will result in a _________. Answer Selected Answer: decrease; gain Question 2 Assume that ANZ bank has long term fixed-rate mortgages financed by short term funds and the bank is concerned of interest rate volatility in the near future. In order to hedge against this possibility, the bank should _____ futures contracts. If interest rates increase, the futures contract will generate a ____. Answer Selected Answer: sell; gain Question 3 Given that the standard deviation of daily returns for a stock in a recent period is 1% and the stock has an expected daily return of 5%. Using standard deviation method in VAR analysis, what is the lower boundary of expected returns given a desired 95% confidence level for maximum loss? Answer Selected Answer: 3.35% Question 4 A firm can best avoid the time lag between registering new securities with the SEC and actually selling them by the : Answer Selected Answer: Use of a shelf-registration Question 5 When the Capital Asset Pricing Model (CAPM) is used to estimate the required rate of return, one of the model's underlying assumption is that Answer Selected Answer: Systematic risk is the type of risk that matters and is being accounted for in the model. Question 6 Buy and sell orders on the OTC market are completed by: Answer Selected Answer: A telecommunications network Question 7 A speculator purchases a put option for a premium of $4, with an exercise price of $30. The stock is presently priced at $29, and rises to $32 before the expiration date. What is the stock price at which the speculator would break even? Answer Selected Answer: $26 Question 8 Assume that a futures contract on Treasury bonds with a face value of $100,000 is purchased at 93-00. If the same contract is later sold at 94-18, what is the gain, ignoring transaction costs? Answer Selected Answer: $1,562.50 Question 9 A stock's average return is 11%. The average risk free rate is 9%. The stock's beta is 1 and its standard deviation of returns is 10%. What is the Sharp Index? Answer Selected Answer: 0.20 Question 10
