ACC 212 – DERIVATIVE SECURITIES QUIZ I = strike price – share price

I = 125 – 130 = -5 ; I = ₱0
General Instruction: Write your answers in the space
given. 4. (2 pts.) Anna decided to enter a 3-month forward contract
for 10,000 bushels of soybeans at a forward price of ₱50 per
IDENTIFICATION: Read and answer the following bushel and is committed to buying the 10,000 bushels of
statements. Wrong spelling wrong. soybeans for ₱50 3 months from now. How much will Anna
_____________1. What is called the market where pay three months from now?
derivative securities are traded? Derivative Securities 50 x 10,000 = ₱500,000
Market
_____________2. What type of derivative securities 5. (2 pts.) On November 20, Ben bought 10 December live
involves a future exchange of a set amount of assets for a cattle contract at CME, at the closing price of ₱25 per kilo.
price that is settled daily? Futures Contract Ben agreed to buy 4,000 kg of live cattle on December 20.
_____________3. This describes the prices on outstanding What is the value of the cattle on November 20?
futures contracts that are adjusted each day to reflect current
futures market conditions. Marked to market 25 x 10 x 4,000 = ₱1,000,000
_____________4. What is the method of futures trading
where traders face each other and cry out their offer to buy
and sell a stated number of futures contracts at a stated
price? Open outcry auction
_____________5. What option gives the seller the right, but
not the obligation, to sell the underlying security to the
writer of the option at a prespecified price on or before a
prespecified date? Put option
MODIFIED TRUE OR FALSE: Write True if the
statement is correct. If the statement is False, write the word
False and correct word/s to correct the statement
(e.g., False - Amazing)
_____________6. The amount of intrinsic value is zero if
the option is out of or at the money. True
_____________7. A futures contract allows firms to manage
their interest rate, foreign exchange, and credit risks better.
False – Swaps
_____________8. Interest rate swap is used to hedge against
exchange rate risk from mismatched currencies on assets
and liabilities. False - Currency Swap
_____________9. The four main types of derivative
securities are spot, futures, options, and swaps. False-
Forward
_____________10. In a call option, as the underlying asset’s
price rises, the call option buyer has a higher potential for
losses, limited to the call option premium. True
PROBLEM-SOLVING: Answer the following problems at
the back of the paper and double-rule your final answer. (2
points each)
Nos. 1-3. Assume a stock is selling for ₱150 with an option
available at ₱125 strike price. The ₱125 option is priced at
₱10.
1. (2 pts.) What is the intrinsic value of the call option?
I = share price – strike price
I = 150 – 125 = ₱25.00
2. (2 pts.) What is the net gain of the call option?
Gain 150
Total Cost:
Premium(10)
Cost (125) (135)
Net Gain 15 x 100 shares = ₱1,500
3. (2 pts.) What is the intrinsic value of the put option if the
stock is currently selling for ₱130?