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| Question | Answer |
|---|---|
| When is interest paid on a zero coupon bond? | t. No semi-annual interest payments are made on these "zero-coupon" bonds. Instead the bonds are purchased at a discount from par and are redeemed at maturity at par value |
| Serial Bond | A bond issue with differing maturities is a serial bond issue |
| Series Bond | A bond issue where the bonds have the same maturity but different dates of issuance is a series bond issue. |
| Corporate bonds are quoted in? | 1/8th. Any fraction with a 2,4, or 8 as the denominator |
| Government bonds are quoted in? | 1/32. |
| Instead, serial bonds are quoted on a? | "yield basis," also known as a basis quote |
| One basis point equals? | .01% on a bond. Ten basis points equal .1%. One hundred basis points equal one full point or 1%. |
| When bond interest rates go up, bond prices go? | Down |
| Longer Maturity on a bond = _____ Volatility? | Greater |
| Shorter Maturity on a bond = _____ Volatility? | Lower |
| Higher Coupon on a bond = _____ Volatility? | Lower |
| What is the most Violatle bond? | Long term zero coupon issues |
| Current Yield Formula? | Annual Interest in dollars/Bonds market price |
| YTM is the highest for a discount bond because? | because it not only reflects the fact that the bond is being purchased for less than par; but it also reflects the annual earning of the bond discount as part of the investment return. |
| contract. When a bond is callable, the issuer has the right to? | redeem (to "call in") the bond at a predetermined price at a date prior to maturity. However, the issuer is not obligated to do so |
| If an equity call holder exercises a contract, the holder must deliver | ash in 3 business days |
| A customer would buy call contracts because the customer | is bullish on the underlying security |
| If the writer of an equity call contract is exercised, the writer must deliver: | stock in 3 business days |
| A customer would buy put contracts because the customer is bullish or bearish | Bearish |
| If an equity put holder exercises a contract, the holder must deliver: | 3 days |
| If an equity put writer is exercised, the writer has the obligation to: | buy stock in 3 business days at the strike price |
| The premium on a call or put option is the? | The cost of the contract |
| Intrinsic value" is defined as the | difference between the strike price and market price of the underlying security, if exercise is profitable to the holder. Has nothing to do with the premium |
| If the market price is above the strike price on a put contract, the difference is termed the | Out the money |
| Time value" is defined as the | excess of premium over the "in the money" amount |
| What influences the premium of an option? | Length of time until expiration of the contract, Volatility of underlying security, Market price of underlying security |
| The main advantage of buying a call option as opposed to buying the underlying stock is: | lower capital requirement |
| To establish a long call position, an order ticket must be marked | Opening Purchase |
| To establish a short call position, an order ticket must be marked: | Opening Sale |
| To liquidate 1 ABC Jan 70 Short Put position, an order ticket must be marked: | Closing Purchase |
| The purchase of a call (long call) or the sale of a put (short put) will give the speculator a? | profit in a rising market. These are the bull strategies |
| The purchase of a put (long put) or the sale of a call (short call) will give the speculator a profit in a? | falling market. These are the bear strategies |
| Long call Strategty maximum gain is? | Unlimited |
| Maximum loss paid on a long call is? | Premium Paid |
| Break Even on a long call is? | Strike price + Premium |
| Maximum Potential loss of short call? | Unlimited termed "naked" |
| Maximum gain of a short call? | Premium received |
| Break even for a short call is? | Strike Price + Premium |
| Maximum Gain for long put strategy? | Strike Price - Premium, Put holder gains when market falls |
| Maximum loss on a long put strategy | Premium |
| Break Even for a long put is? | Strike Price - Premium |
| Max gain for a short Put is? | Premium |
| Max loss for a short Put is? | Strike price-premium |
| Break even for a short Put is? | Strike price-premium |
| The purchase of a call is a? | Bull strategy |
| If a customer sales a call it is considered ___ strategy? | Short Call |
| If a customer buys a call it is considered ___ strategy? | Long Call |
| If a customer buys a put it is considered ___ strategy? | Long put |
| If a customer sells a put it is considered ___ strategy? | Short put |
| Which of the following option positions is used to hedge a long stock position? | Long put |
| Which of the following option positions is used to hedge a short stock position? | Long Call |
Created by:
fidelity