Deck 24: Integrating Derivative Assets and Portfolio Management

Question 1

Constructing a stock portfolio that meets set constraints can be accomplished via

A) linear programming
B) calculation of the economic order quantity
C) finding the net present value
D) duration matching

Answer 1

linear programming

Question 2

The chapter example generated additional income using

A) equity calls
B) equity puts
C) index calls
D) index puts

Answer 2

index calls

Question 3

If you use index calls to generate additional income in a stock portfolio, which of the following statements is true?

A) Regardless of the portfolio size, the income that can be generated with index calls is fixed and known
B) The higher the striking price, the greater the number of options you can write
C) The lower the striking price, the greater the number of options you can write
D) Writing index options eliminates the downside risk of a portfolio

Answer 3

The higher the striking price, the greater the number of options you can write

Question 4

Writing calls will always _____ a portfolio's _____.

A) reduce, beta
B) increase, beta
C) reduce, duration
D) increase, duration

Question 5

A portfolio has a position delta of 1,250 and a beta of 1.15. If you write calls against it such that the position delta falls to 500, what is the approximate new portfolio beta?

A) 0.46
B) 0.55
C) 1.05
D) 1.15; beta will not change

Question 6

Implied volatility is a(n)

A) estimated statistic
B) catchall statistic
C) independent variable
D) binomial variable

Question 7

Hedging company-specific risk is best done using

A) index puts
B) index calls
C) equity calls
D) equity puts

Question 8

The chapter showed an example of using which mathematical technique in determining the number of puts and calls to use in a particular application?

A) Differential equations
B) Calculus
C) Simultaneous equations
D) Imaginary numbers

Question 9

Which of the following is not necessary in calculating a Treasury bond hedge ratio?

A) The portfolio yield to maturity
B) The portfolio duration
C) The duration of the cheapest to deliver bond
D) The adjustment factor

Question 10

A futures option pricing model is the

A) Miller model
B) Chance model
C) White model
D) Black model

Question 11

Suppose you are managing a stock portfolio with a current market value of $3.7 million and a portfolio beta of 1.465. You would like to write 20 call options against the portfolio using July 580 OEX 100 index call options that have a premium of $7.30 and a delta of 0.651. The S&P 100 index closed at 541.86. You also have used the Black Scholes model to calculate that the delta of an at-the-money call option is 0.515. How many at-the-money contracts of the index are equivalent to your portfolio?

A) 80 contracts
B) 100 contracts
C) 120 contracts
D) 140 contracts

Question 12

Suppose you are managing a stock portfolio with a current market value of $3.7 million and a portfolio beta of 1.465. You would like to write 20 call options against the portfolio using July 580 OEX 100 index call options that have a premium of $7.30 and a delta of 0.651. The S&P 100 index closed at 541.86. You also have used the Black Scholes model to calculate that the delta of an at-the-money call option is 0.515. What would be the beta of your portfolio after writing 20 July 580 OEX index call options?

A) 0.895
B) 1.095
C) 1.295
D) 1.695