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 1. 2. 3. 4. 5. 6. 7. 8. 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