Applied Financial Management
Final Exam Questions
Course Introduction
Applied Financial Management explores the practical aspects of managing an organizations finances, focusing on the tools and techniques used to make effective financial decisions. The course covers key topics such as financial statement analysis, budgeting, capital structure, working capital management, investment appraisal, and risk management. Emphasizing real-world applications, students learn how to assess financial performance, plan improvements, and support strategic goals within various business contexts. Through case studies, hands-on exercises, and industry examples, students gain critical skills required for effective financial planning, analysis, and decision-making in todays dynamic business environment.
Recommended Textbook
Introduction to Derivatives and Risk Management 9th Edition by Don M. Chance
Available Study Resources on Quizplus
16 Chapters
945 Verified Questions
945 Flashcards
Source URL: https://quizplus.com/study-set/3840 Page 2
Chapter 1: Introduction
Available Study Resources on Quizplus for this Chatper
40 Verified Questions
40 Flashcards
Source URL: https://quizplus.com/quiz/76573
Sample Questions
Q1) A call option gives the holder
A) the right to buy something
B) the right to sell something
C) the obligation to buy something
D) the obligation to sell something
E) none of the above
Answer: A
Q2) Uncertainty of future sales and cost of inputs are examples of financial risks businesses may face.
A)True
B)False
Answer: False
Q3) The expected return minus the risk-free rate is called
A) the risk premium
B) the percentage return
C) the asset's beta
D) the return premium
E) none of the above
Answer: A
To view all questions and flashcards with answers, click on the resource link above.
Page 3
Chapter 2: Structure of Options Markets
Available Study Resources on Quizplus for this Chatper
65 Verified Questions
65 Flashcards
Source URL: https://quizplus.com/quiz/76574
Sample Questions
Q1) The number of options acquired when one contract is purchased on an exchange is
A) 1
B) 5
C) 100
D) 500
E) 8,000
Answer: C
Q2) The over-the-counter options market is much larger than the exchange-listed options market.
A)True
B)False
Answer: True
Q3) If the market maker will buy at 4 and sell at 4.50, the bid-ask spread is
A) 8.50
B) 4.25
C) 0.50
D) 4.00
E) none of the above
Answer: C
To view all questions and flashcards with answers, click on the resource link above.
Page 4
Chapter 3: Principles of Option Pricing
Available Study Resources on Quizplus for this Chatper
60 Verified Questions
60 Flashcards
Source URL: https://quizplus.com/quiz/76575
Sample Questions
Q1) At expiration the call price must converge to the stock price.
A)True
B)False
Answer: False
Q2) An American call on a non-dividend paying stock will be worth more than a European call on that same stock.
A)True
B)False
Answer: False
Q3) Given a longer-lived American call and a shorter-lived American call with the same terms, the longer-lived call must always be worth
A) at most the value of the shorter-lived call
B) at least as much as the shorter-lived call
C) exactly the same as the shorter-lived call
D) the shorter-lived call discounted to the length of the longer-lived call
E) none of the above
Answer: B
To view all questions and flashcards with answers, click on the resource link above. Page 5
Chapter 4: Option Pricing Models: The Binomial Model
Available Study Resources on Quizplus for this Chatper
60 Verified Questions
60 Flashcards
Source URL: https://quizplus.com/quiz/76576
Sample Questions
Q1) When pricing an American put with the binomial model, you must check for early exercise at each time point and stock price except the current one.
A)True
B)False
Q2) The values of u and d are which of the following?
A) the return on the stock if it goes up and down, respectively B) the inverse of the ratio of the up and down probabilities, respectively, and the risk-free rate
C) the normal probabilities of up and down movements, respectively D) one plus the return on the stock if it goes up and down, respectively E) none of the above
Q3) If the stock price adjusted for dividends at a continuous rate follows the up and down parameters, the binomial tree will recombine.
A)True
B)False
Q4) In a recombining binomial model with n periods, the number of outcomes is n + 1.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above.
Page 6
Chapter 5: Option Pricing Models: The
Black-Scholes-Merton Model
Available Study Resources on Quizplus for this Chatper
60 Verified Questions
60 Flashcards
Source URL: https://quizplus.com/quiz/76577
Sample Questions
Q1) The binomial price will theoretically equal the Black-Scholes-Merton price under which of the following conditions?
A) when the number of time periods is large
B) when the option is at-the-money
C) when the option is in-the-money
D) when the option is out-of-the-money
E) none of the above
Q2) Which of the following variables in the Black-Scholes-Merton option pricing model is the most difficult to obtain?
A) the volatility
B) the risk-free rate
C) the stock price
D) the time to expiration
E) the exercise price
Q3) The Black-Scholes-Merton model assumes that the underlying company never goes bankrupt.
A)True B)False
To view all questions and flashcards with answers, click on the resource link above. Page 7
Chapter 6: Basic Option Strategies
Available Study Resources on Quizplus for this Chatper
60 Verified Questions
60 Flashcards
Source URL: https://quizplus.com/quiz/76578
Sample Questions
Q1) What is the maximum profit that the writer of a call can make?
A) $2,711
B) $289
C) $3,000
D) $3,289
E) none of the above
Q2) The breakeven for a protective put is the same as that for a covered call.
A)True
B)False
Q3) As long as puts are available for trading, there is little justification for constructing synthetic puts.
A)True
B)False
Q4) What is the minimum profit from the transaction described in Question 6 if the position is held to expiration?
A) -$2,711
B) -$3,289
C) -$3,000
D) negative infinity
E) none of the above
To view all questions and flashcards with answers, click on the resource link above. Page 8
Chapter 7: Advanced Option Strategies
Available Study Resources on Quizplus for this Chatper
60 Verified Questions
60 Flashcards
Source URL: https://quizplus.com/quiz/76579
Sample Questions
Q1) The option strategy where the holder of a long position in a stock buys a put with an exercise price lower than the current stock price and sells a call with an exercise price higher than the current stock price is known as
A) box
B) bear strategy
C) bull strategy
D) collar
E) spread
Q2) What is the profit if the position is held for 90 days and the stock price is $55?
A) -$971
B) -$58
C) -$109
D) -$471
E) none of the above
Q3) An investor who holds a strap (2 calls and 1 put) believes the market is more likely to go up than down.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above.
9
Chapter 8: Structure of Forward and Futures Markets
Available Study Resources on Quizplus for this Chatper
61 Verified Questions
61 Flashcards
Source URL: https://quizplus.com/quiz/76580
Sample Questions
Q1) The number of long or short futures positions outstanding is called the A) reportable position
B) minimum volume
C) open interest
D) spread position
E) none of the above
Q2) One party to a futures transaction does not bear the risk that the other party will default.
A)True
B)False
Q3) Locals are futures traders who are in business for themselves.
A)True
B)False
Q4) This individual takes a futures contract position that is opposite to the position in the spot market in order to reduce risk
A) speculator
B) hedger
C) spreader
D) arbitrageur
E) trading advisor
To view all questions and flashcards with answers, click on the resource link above. Page 10
Chapter 9: Principles of Pricing Forwards, Futures and Options on Futures
Available Study Resources on Quizplus for this Chatper
60 Verified Questions
60 Flashcards
Source URL: https://quizplus.com/quiz/76581
Sample Questions
Q1) If the exercise price equals the futures price, a put on the futures will have the same price as a call on the futures.
A)True
B)False
Q2) Under uncertainty and risk neutrality, today's spot price equals the expected future spot price minus the cost of storage and interest forgone.
A)True
B)False
Q3) Suppose you buy a futures contract at $150. If the futures price changes to $147, what is its value an instant before it is marked-to-market?
A) 0
B) $3
C) -$3
D) it is impossible to tell E) none of the above
Q4) The futures price of a non-storable asset is determined by the cost of carry.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 11
Chapter 10: Futures Arbitrage Strategies
Available Study Resources on Quizplus for this Chatper
59 Verified Questions
59 Flashcards
Source URL: https://quizplus.com/quiz/76582
Sample Questions
Q1) Determine the amount by which a stock index futures is mispriced if the stock index is at 200, the futures is at 202.5, the risk-free rate is 6.45 percent, the dividend yield is 2.75 percent, and the contract expires in three months.
A) underpriced by 0.64
B) overpriced by 2.5
C) overpriced by 9.76
D) overpriced by 0.64
E) underpriced by 2.5
Q2) The timing option will lead to early delivery if the coupon rate is higher than the repo rate.
A)True
B)False
Q3) In theory, the foreign exchange futures price is based on four parameters only, the spot foreign exchange rate, the risk-free rate in the domestic currency, the risk-free rate in the foreign currency, and time to maturity.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above.
12
Chapter 11: Forward and Futures Hedging, Spread, and Target Strategies
Available Study Resources on Quizplus for this Chatper
60 Verified Questions
60 Flashcards
Source URL: https://quizplus.com/quiz/76583
Sample Questions
Q1) A foreign currency long hedge with a $/¥ futures contract will be a foreign currency short hedge with a ¥/$ futures contract.
A)True
B)False
Q2) If the target beta exceeds the underlying's beta, then the manager will go long the futures contract.
A)True
B)False
Q3) A short hedge is one in which
A) the margin requirement is waived
B) the hedger is short futures
C) the hedger is short in the spot market
D) the futures price is lower than the spot price
E) none of the above
Q4) What happens to the basis through the contract's life?
A) it initially decreases, then increases
B) it initially increases, then decreases
C) it remains relatively steady
D) it moves toward zero
E) none of the above
To view all questions and flashcards with answers, click on the resource link above. Page 13
Chapter 12: Swaps
Available Study Resources on Quizplus for this Chatper
60 Verified Questions
60 Flashcards
Source URL: https://quizplus.com/quiz/76584
Sample Questions
Q1) The market value of a swap is zero between settlement dates.
A)True
B)False
Q2) An interest rate swap with both sides paying a floating rate is called a A) plain vanilla swap
B) two-way swap
C) floating swap
D) spread swap
E) basis swap
Q3) The difference between the swap rate and the rate on a Treasury security of the same maturity is called the A) swap spread
B) risk premium
C) swap basis
D) settlement spread
E) LIBOR
Q4) Swap payments are always either fixed or floating but never both.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 14
Chapter 13: Interest Rate Forwards and Options
Available Study Resources on Quizplus for this Chatper
60 Verified Questions
60 Flashcards
Source URL: https://quizplus.com/quiz/76585
Sample Questions
Q1) Which of the following is not required to determine a swaption payoff at expiration?
A) the exercise rate
B) the term structure of zero coupon rates at the swaption expiration
C) the maturity of the underlying swap
D) the yield on a bond of equivalent maturity as the swap
E) none of the above
Q2) Which of the following is a limitation of using the Black model to price interest rate options?
A) the risk-free rate is not constant
B) the volatility is not constant
C) interest rates are not lognormally distributed
D) all of the above
E) none of the above
Q3) An FRA in which the rate is not set according to rates in the market is called
A) a short FRA
B) a long FRA
C) an off-market FRA
D) a hedged FRA
E) an FRA spread
To view all questions and flashcards with answers, click on the resource link above. Page 15
Chapter 14: Advanced Derivatives and Strategies
Available Study Resources on Quizplus for this Chatper
60 Verified Questions
60 Flashcards
Source URL: https://quizplus.com/quiz/76586
Sample Questions
Q1) Equity-linked debt is equivalent to a zero coupon bond and a given number of call options.
A)True
B)False
Q2) Which of the following statements about mortgage-backed security strips is true?
A) both interest-only and principal-only strips are subject to pre-payment risk
B) only principal-only strips are subject to prepayment risk
C) only interest-only strips are subject to prepayment risk
D) the prepayment risk of interest-only and principal-only strips is precisely offsetting E) none of the above
Q3) A standard (Black-Scholes) European option is equivalent to a combination of a down-and-out call plus a down-and-out put.
A)True
B)False
Q4) In practice portfolio insurance strategies are usually executed using put options.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above.
16
Chapter 15: Financial Risk Management Techniques and Appplications
Available Study Resources on Quizplus for this Chatper
60 Verified Questions
60 Flashcards
Source URL: https://quizplus.com/quiz/76587
Sample Questions
Q1) Delta, gamma, and vega hedging is rather complex. Identify the false statement.
A) Requires the use of four hedging instruments
B) At least one of the instruments has to be an option
C) Involves designing a portfolio where delta, gamma, and vega are set equal to zero
D) Typically involves the solution to three simultaneous equations
E) All of the above statements are true
Q2) In option terms, the limited liability of corporate stockholders is
A) a forward contract
B) a call option
C) a put option
D) a protective put
E) a fiduciary call
Q3) A delta and gamma hedge is
A) one in which the combined spot and derivatives positions have a delta of zero and a gamma of zero.
B) one that is not guaranteed to be free of all risks
C) effective only for small changes in the underlying instrument.
D) all of the above statements are true
E) none of the above statements are true
Page 17
To view all questions and flashcards with answers, click on the resource link above.
Chapter 16: Managing Risk in an Organization
Available Study Resources on Quizplus for this Chatper
60 Verified Questions
60 Flashcards
Source URL: https://quizplus.com/quiz/76588
Sample Questions
Q1) Derivatives activities in end users are primarily conducted by
A) the human resources group
B) the sales staff
C) the chief financial officer
D) the board of directors
E) the treasury group
Q2) Metalgesellschaft lost about $1.3 billion doing what?
A) hedging short-term commitments with long-term options
B) using crude oil futures options to hedge crude oil futures
C) trading futures spreads on crude oil
D) hedging fixed rate oil price commitments with swaptions
E) none of the above
Q3) In which of the following activities is hedge accounting prohibited?
A) hedging an overall portfolio as opposed to an individual transaction
B) using short calls to protect a long asset
C) using long puts to protect an asset
D) hedging a long position with a short futures
E) hedging a swap with a swaption
To view all questions and flashcards with answers, click on the resource link above.
18