Series 6

Series 6 practice questions, page 8 of 13, with answer review and explanations.

Question 36

In mid-September, the stock of Oracle (ORCL) is selling for $25.60 a share. Ms. Hedge owns shares of Oracle and buys a put option on the stock with a strike price of $27 that expires in October for $2.20 per optioned share. Just prior to expiration, Oracles stock is selling for $29. Ms. Hedge should:

  1. let her option expire worthless.
  2. exercise her option and sell Oracle for $29 a share.
  3. exercise her option and buy more shares of Oracle for $27 a share.
  4. exercise her option and sell Oracle for $27 a share.

Question 37

In mid-September, the stock of Amazon.com, Inc. (AMZN) is selling for $147.A January call option on the stock is selling for $6.10 and has a strike price of $160. This call option is:

  1. at the money.
  2. in the money.
  3. out of the money.
  4. overpriced. No one should pay $6.10 for the right to buy a share of stock for $160 when its current market price is only $147.

Question 38

A warrant differs from a standard call option in that:

  1. a standard call option generally has a longer period to expiration than a warrant.
  2. when a warrant is exercised, the firm whose stock is being purchased will have an increase in cash; this is not the case when a standard call option is exercised.
  3. a warrant gives the holder the right to sell shares of the underlying stock; a call option gives the holder the right to buy shares of the underlying stock.
  4. when a call option is exercised, the outstanding shares of the firm whose stock is being purchased increases; this does not occur when a warrant is exercised.

Question 39

A type of preferred stock for which any dividends missed in prior years must be paid before common shareholders may receive any dividends is referred to as:

  1. cumulative preferred.
  2. participating preferred.
  3. convertible preferred.
  4. adjustable rate preferred.

Question 40

The stock of Hasbro Corporation (HAS) is selling for $44.50 and pays a dividend of $1.00 a share. What is its dividend yield, rounded to the nearest hundredth of a percent?

  1. 1.00%
  2. 2.25%
  3. 4.45%
  4. none of the above