The maximum loss on a put purchase is the premium on the put. True False 1 point

Question

The maximum loss on a put purchase is the premium on the put.

True

False

1 points   

QUESTION 2

Buying a call option is the mirror image of selling a put option.

True

False

1 points   

QUESTION 3

Buying a call with a higher exercise price offers a greater profit potential than one with a lower exercise price.

True

False

1 points   

QUESTION 4

Given two bearish investors, the more risk averse investor would tend to select a put with a higher exercise price.

True

False

1 points   

QUESTION 5

Buying a put money spread is a bearish strategy.

True

False

1 points   

QUESTION 6

In a calendar spread the time value of the nearby option will decay more rapidly.

True

False

1 points   

QUESTION 7

A call butterfly spread combines a call bull spread with a call bear spread.

True

False

1 points   

QUESTION 8

A call butterfly spread is a bullish strategy that is profitable if stock prices decrease.

True

False

1 points   

QUESTION 9

The holder of a straddle does not care which way the market moves as long as it makes a significant move.

True

False

1 points   

QUESTION 10

An investor who holds a strap believes the market is more likely to go up than down.

True

False

1 points   

QUESTION 11

Credit risk is handled in futures markets by daily marking-to-market.

True

False

1 points   

QUESTION 12

Stock index futures contracts are terminated by delivering the portfolio of stocks represented by the index.

True

False

1 points   

QUESTION 13

Very few futures contracts are terminated in delivery of the underlying commodity or security.

True

False

1 points   

QUESTION 14

Historically, most of the forward and futures contracts were made on commodities until the 1970s. However, these days the majority of futures contracts are financial futures.

True

False

1 points   

QUESTION 15

Speculators in the futures market play an important role by providing the liquidity that makes hedging possible and assuming the risk that hedgers are trying to eliminate.

True

False

1 points   

QUESTION 16

When futures accounts are marked-to-market, an account balance below the maintenance margin must be brought up to the maintenance margin.

True

False

1 points   

QUESTION 17

If volume and open interest increase with prices, it is considered a sign of a solid bull market.

True

False

1 points   

QUESTION 18

The dividends that are subtracted from the cost of storage to determine the cost of carry are actually the present value of future dividends.

True

False

1 points   

QUESTION 19

A convenience yield is an explanation for a negative cost of carry.

True

False

1 points   

QUESTION 20

Holding everything else constant, dividends or interest on the underlying commodity would make a futures price be higher.

True

False

Explanation / Answer

The maximum loss on any option is the premium paid on it. Because the holder shall not exercise the option if it would not be profitable for him. In that case the maximum loss shall be premium paid.

Hence the statement given:The maximum loss on a put purchase is the premium on the put.

Is TRUE.

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