AS 05 (iv) - Finance and Investment Mock Test 20
This section covers important concepts related to options, bonds, private equity, investment returns, mutual funds, and market sentiment. It explains the advantages of options over futures, bond trading at a discount, differences between American and European options, the role of private equity as an alternative asset class, the Option Greeks used in option pricing, the formula for call option intrinsic value, sentiment indicators used to assess market psychology, the reasons investors expect returns on investments, the contents of a Mutual Fund Offer Document (OD), and the standard lot size for NIFTY options in India.
1. Which of the following is a key ADVANTAGE of Options over Futures?
A. Options are cheaper to enter than futures
B. Options are always exercised at expiry unlike futures
C. Options traders can implement non-directional strategies and potentially benefit whether markets move up, down, or remain sideways
D. Options always have positive delta unlike futures
E. Options have no time value decay unlike futures
2. If a bond trades below its par value, it is said to be:
A. Trading at a premium
B. Trading at a discount
C. At maturity
D. Trading at face value
E. Trading at par
3. What is the difference between an 'American Style Option' and a 'European Style Option'?
A. American options are traded only on U.S. exchanges, while European options are traded only on European exchanges
B. An American option may be exercised at any time before expiry, whereas a European option can be exercised only on the expiry date
C. American options are only for equity shares, while European options are only for index futures
D. American options require no initial margin, whereas European options do
E. American options are cash settled, whereas European options are physically settled
4. What is the primary distinguishing feature of 'Private Equity' as an asset class compared to listed equities?
A. Private equity always offers lower returns than listed equities
B. Private equity is a listed asset class traded on stock exchanges
C. Private equity is classified under the alternative or "other" asset class beyond the traditional categories of cash, bonds, and stocks
D. Private equity investments carry no risk
E. Private equity investments are available only to retail investors
5. What are the 'Option Greeks' as a whole?
A. The five main types of derivative instruments
B. Five different option trading strategies
C. Five measures that indicate how an option's value responds to changes in factors such as price, volatility, time, and interest rates (Delta, Vega, Theta, Gamma, and Rho)
D. Five methods for calculating intrinsic value
E. Five types of option expiry mechanisms
6. What is the formula for 'Call Intrinsic Value'?
A. Call Intrinsic Value = Strike Price − Current Stock Price
B. Call Intrinsic Value = Underlying Security Price − Exercise (Strike) Price
C. Call Intrinsic Value = Exercise Price + Premium
D. Call Intrinsic Value = Current Stock Price + Premium
E. Call Intrinsic Value = Premium − Time Value
7. Sell/Buy ratios, insider trading activity, market participant surveys, mutual fund cash positions, and confidence indexes are examples of:
A. Asset allocation steps
B. Risk tolerance assessment tools
C. Sentiment indicators used to evaluate market psychology and investor behavior
D. Portfolio rebalancing methods
E. Types of asset allocation strategies
8. According to the chapter, what is the primary reason investors require 'Return' on their investments?
A. To beat inflation alone
B. To receive compensation for the time value of money, expected inflation, and uncertainty of future cash flows while improving future utility from present sacrifices
C. To maximize tax benefits
D. To earn dividends from companies
E. To speculate on market movements
9. What does the Mutual Fund Offer Document (OD) typically contain?
A. Only the fund's historical performance record
B. Information on purchase and redemption procedures, load and expense structure, accounting and valuation policies, fund structure, operational procedures, and investor rights and responsibilities
C. Only the names of the Trustees and AMC
D. Only the investment strategy
E. Only the regulatory approvals obtained
10. What is the 'Lot Size' for NIFTY options in India?
A. 25 contracts per lot
B. 50 contracts per lot
C. 75 contracts per lot
D. 100 contracts per lot
E. 10 contracts per lot
