26, The general theory of dollar cost averaging is A) to sell as markets decline

Question

26, The general theory of dollar cost averaging is                                                                

      A) to sell as markets decline and buy as they begin to rise.

       B) to time the market to take advantage of low stock prices.

       C) to equal the performance of market averages at the lowest dollar cost.

      D) to buy more stock when prices are low and less when prices are high.

27,Shares of Lakewood, Inc. are currently selling for $52.63. You believe the stock will decline in price                 

    ranging from $30 to $32 in the next few months. Which of the following strategies will allow you to

    profit if your prediction is correct?

    I.   short the stock

    II.  buy a call at 50

    III. write a call at 55

    IV.  buy a put at 45

       A) III and IV only                                          B) II and IV only

       C) I and III only                                           D) I, III and IV only

28, Mathew simultaneously sold a July 40 put on ZXY stock for $200 and bought a July 35 put for $75.                       

    His maximum loss is ________ and his maximum gain is ________.

       A) $375, $125                 B) $500, $125                 C) $275, $125                 D) $375, unlimited

29,Matt owns 500 shares of IKM stock. The market price of IKM is $51.74. Matt just sold five calls on                     

    IKM with a strike price of $50. This is known as

       A) covering a short position.                               B) creating a naked cover.

       C) writing a covered call.                                  D) writing a naked call.

30, Jason purchased a six -month put on ABC stock at a cost of $100. The strike price was $15. At what                     

    market price does Jason just break-even on this investment? Ignore transaction costs and taxes.

       A) $16

       B) $14

       C) $15

       D) Cannot be determined from the information provided

31, Allison bought 100 shares of MIKO, Inc. stock at a price of $35 a share. In addition, she bought a 35                  

    put on MIKO at a cost of $125. Which of the following are true about Allison's position from now

    until the option expiration date?

    I.   Her maximum loss is $3,625.

    II.  Her maximum loss is $125.

    III. Her minimum gain is $125.

    IV.  Her maximum profit is unlimited.

       A) II and IV only                                           B) I and IV only

       C) II, III and IV only                                      D) II and III only

Explanation / Answer

Steve bought 300 shares of stock at a price of $20 per share. The price of the stock then went up to

28 is A

29 is C

30 is B

31 is A

32 is C

33 is true

34 is D (assuming they mean actual interest rate futures, not bond futures - you would sell those)

40 is B

41 is C

not positive about 41, the other answers are right

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