Chapter 1 Derivative Markets

Chapter 1
Derivative Markets
1. (S09TF) List the four uses of Derivatives.
2.
(S10TF) List the three perspectives on derivatives.
3.
(S13HW) The bid-ask prices on a share of stock of Peterson Corporation are 100.00 – 100.50 .
Zhiyan purchases 200 shares of Peterson Corporation. The total commissions on her purchase
were 100.
At the same time, Matt is selling 200 shares of Peterson Corporation. Matt’s commissions are
0.5% of the selling price.
Calculate the total transaction costs incurred by Zhiyan and Matt combined.
4. (S09TF) Julie sells 200 shares of Snuffer Industries at the same time that Andrew purchases 200
shares.
The Bid Price for the shares of Snuffer was 9.75.
Julie paid a commission of 60. Andrew paid a commission of 2%.
The total transaction costs were $150.
Determine the Ask Price for Snuffer.
5. (S10Q6) Zhou LTD stock has a bid price of 27.50 and an ask price of 28.00.
Sheely Stockbrokers charges a flat commission of $50 for each stock transaction without regard
to the number of shares purchased.
Baig Brokers charges a commission of 0.2% of the total stock price.
You are going to buy the stock of Zhou LTD.
How many shares of stock would you need to buy in order to be better off buying through
Sheely Stockbrokers instead of Baig Brokers?
6.
(S10Q6) Jordan short sells Hardwick Inc stock. The bid price for the stock was 50 and the ask
price for the stock was 50.50. Jordan pays a commission which is 0.6%. The collateral is 100% of
the cash collected after the commission.
The “haircut” is 50% of the stock price before commissions.
Determine the amount of collateral and the haircut.
November 11, 2014
Copyright Jeff Beckley 2013, 2014
Chapter 1
Derivative Markets
7. (S10TF) When you sell stock, you receive the Ask price.
True or
False
8. (S10TF) An earthquake a non-diversifiable risk.
True or
False
9. (S10Q6) Circle any of the following that are NOT a derivative:
IBM stock
An automobile insurance policy
The right to sell corn in six months for a price of $7 per bushel
A United States Treasury Bond
November 11, 2014
Copyright Jeff Beckley 2013, 2014
Chapter 1
Derivative Markets
Answers
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9.
No answer given
No answer given
300
10
893
49.70 and 25
No answer given
No answer given
No answer given
November 11, 2014
Copyright Jeff Beckley 2013, 2014