QUESTION 27

1. A certain Put option has a strike price of $22.50. The stock price for this security is currently is $19.00. If the premium paid on the option is $5.40, then the option currently is:

   		at-the-money
   		over-the-money
   		under-the money
   		in-the-money
   		out-of-the-money

2 points

QUESTION 28

1. With regards to Net Basis/Gross Basis and Clearing Margin by Futures Exchange Clearinghouse members, which of the following statements are FALSE? I. There are two systems used by clearing house members, the gross basis approach and the net basis approach. Of these two, most futures exchanges use a net basis approach to determine how much clearing margin a clearinghouse member must maintain in their account. II. Under the gross basis approach, the clearinghouse member would be able to offset the short and long positions to determine his/her member margin level. III. Under the net basis approach, the member would be required to have sufficient clearing margins to meet allcontracts open (both long and short) at the end of the trading day. IV. The whole purpose of the margining system (both for investors and clearinghouse members) is to reduce the possibility of market participants sustaining losses because of defaults by other investors on the other side of a contract.

   		I only is false
   		II and III are false
   		all (I, II, III, and IV) are false
   		II and IV only are false
   		IV only is false

2 points

QUESTION 29

1. Under a Private Placement offering, which of the following are TRUE? I. It is often used by firms with either high credit quality or low or unknown credit quality. II. Such securities issued under this process are sometimes referred to as " letter securities." III. It is permitted under Regulation D of the Securities Act of 1933. IV. It involves the sale of securities directly from an issuer to an investor without going through the public offering process. V. Private placements are used extensively by venture capital funds and hedge funds.

   		I and II
   		I, II and III
   		I, II, III, IV and V
   		I, II and IV
   		II, III, and V

2 points

QUESTION 30

1. Which of the following statements about alternative investment funds are FALSE? I. Such funds are normally NOT publically traded, thus are private. II. They tend to follow a short-term investment time horizon which can often involve an annual turnover of investments in their portfolio. III. These funds generally are structured as private corporations with investors playing an active role in the funds operations. IV. They are available only to accredited investors or " qualified purchasers" (i.e., institutions and wealthy individuals). V. Their investment approach often involves non-conventional investment strategies and can often employ illiquid securitie

   		I and II
   		II, and III
   		II, III, and IV
   		I, II, and V
   		III, IV, and V

2 points

QUESTION 31

1. With regards to basis and futures prices, which of the following are TRUE? I. A strengthening of basis occurs when the basis widens over some period of time (i.e., the spot price increases by more than the futures price during some period of time). II. A weakening of basis occurs when the basis narrows over some period of time (i.e., the spot price increases by less than the futures price during some period of time). III. A strengthening of basis occurs when the basis narrows over some period of time (i.e., the spot price increases by less than the futures price during some period of time). IV. A weakening of basis occurs when the basis widens over some period of time (i.e., the spot price increases by more than the futures price during some period of time). V. A negative basis value indicates a market is in contango.

   		I and II only are true
   		II and III only are true
   		I, II, and V are true
   		I and IV only are true
   		V only is true

2 points

QUESTION 32

1. A certain Call option has a strike price of $55.00. The stock price currently stands at $47.00. If the premium paid on the option is $6.00, the option currently is:

   		at-the-money, with an intrinsic value of $2.00
   		out-of-the-money with an intrinsic value of $8.00
   		in-the-money with an intrinsic value of $2.00
   		over-the-money with an intrinsic value of $13.00
   		none of the above is true about this option

2 points

QUESTION 33

1. The Banking Act of 1933 (Glass-Steagall Act) had several objectives. Which of the following was NOT one of those objectives?

   		To discourage speculative activity by commercial banks in the financial markets.
   		To stabilize the investment banking industry by lifting public confidence in the underwriting process on Wall Street.
   		To restore public confidence in the safety and soundness of the commercial banking industry.
   		To prevent conflicts of interest and self-dealings by commercial banks and investment banks (e.g., the issuance of imprudent loans to clients by commercial banks to get or retain their business).

2 points

QUESTION 34

1. Which of the following statements are TRUE regarding Futures and Options contracts? I. The buyer of an option contract can lose at most the premium paid to acquire the option contract. II. Under a Put option contract, if the market value (price) of the underlying asset goes ABOVE the strike (exercise) price, the option holder can exercise his/her right to buy the asset to the option holders profit. III. Unless offset by a Reverse Trade, the holder of a Futures Contract, MUST carry out delivery of the underlying asset at the agreed price on the specified date. IV. An option contract does NOT require the option holder to exercise the option. V. Both options and futures contracts are considered contingent claims, as their payoff is contingent on prices of other (underlying) securities/assets.

   		I, II, and V
   		I, II, IV, V
   		I, III, IV, and V
   		II and IV
   		I, II, III, IV, and V

2 points

QUESTION 35

1. Under a Passive Management Strategy, which approach involves the use of historical information on price changes and correlations between securities as input in order to determine the composition of a portfolio that will minimize tracking error with a given market index (benchmark)?

   		Sampling strategy
   		Third-level strategy
   		Full replication strategy
   		Quadratic Optimization strategy
   		Mean-Variance Optimization strategy

2 points

QUESTION 36

1. Which of the following statements is TRUE about Unit Investment Trusts. I. The key aim of Unit Investment Trust (UIT) is to produce an income flow to the UIT portfolio which is then passed on (after fees) to UIT shareholders. II. A Unit Investment Trust (UIT) will have a fixed termination date (i.e., a single maturity date when the UITs portfolio will be liquidated and the UIT closed). III. UITs issue unit certificates (UCs) which are sold and redeemed only by the issuing UIT. IV. After the UIT is set up by the sponsor (usually a brokerage house or bond underwriter) it is turned over to a trustee who then holds the portfolio until the securities are redeemed by the securities issuers. V. A Real Estate Investment Trust (REIT) is a type of UIT that invests in real estate and real estate related securities.

   		II and V
   		I, II, and III
   		I, II, IV and V
   		I, II, III, IV, and V
   		III, and V