Quiz #4: Each correct answer counts 100/6 points.

Name: ___________________________________________________

Chapter 14

Question 1. Economic Value Added (EVA) is: a. The difference between the return on assets and the opportunity cost of capital times the capital baseb. ROA x ROEc. A measure of the firm's abnormal returnd. Largest for high growth firms

Chapter 15

Question 2. A writer of a call option will want the value of the underlying asset to __________ and a buyer of a put option will want the value of the underlying asset to __________. a. Decrease, decreaseb. Decrease, increasec. Increase, decreased. Increase, increase

Question 3. You purchase one IBM July 120 call contract for a premium of $5. You hold the option until the expiration date when IBM stock sells for $123 per share. You will realize a ______ on the investment. a. $200 profitb. $200 lossc. $300 profitd. $300 loss

Methodology:

Long Call Profit = Max [0, ($123 - $120) (100)] - $500 = -$200

Chapter 16

Question 4. If a stock price increases, the price of a put option on the stock will __________ and the price of a call option on the stock will __________. a. Decrease, decreaseb. Decrease, increasec. Increase, decreased. Increase, increase

Chapter 17

Question 5. An investor who goes short in a futures contract will _____ any increase in value of the underlying asset and will _____ any decrease in value in the underlying asset. a. Pay; payb. Pay; receivec. Receive; payd. Receive; receive 

Question 6. On January 1, you sold one April S&P 500 index futures contract at a futures price of 1300. If the April futures price is 1250 on February 1, your profit would be __________ if you close your position. (The contract multiplier is $250.) a. -$12,500b. -$15,000c. $15,000d. $12,500

Methodology: 

1300 – 1250 = 5050 x 250 = $12,500

Grade: ______________________