Murray's can borrow money at a fixed rate of 10.5 percent or a variable rate set at prime plus 2.25 percent

Murray's can borrow money at a fixed rate of 10.5 percent or a variable rate set at prime plus 2.25 percent. Fred's can borrow money at a variable rate of prime plus 1.5 percent or a fixed rate of 12 percent. Murray's prefers a variable rate and Fred's prefers a fixed rate. Given this information, which one of the following statements is correct?    A.  After swapping interest rates with Fred's, Murray's may be able to pay prime plus 2 percent. B.  Both companies can profit in a swap which will allow Murray's to pay a variable rate of prime plus one percent. C.  Fred's will end up with a fixed rate of 10 percent. D.  Fred's has the best chance of profiting if it does an interest rate swap with Murray's. E.  There are no terms under which Murray's and Fred's can swap interest rates. Refer to section 23.5

36.

A call option contract:    A.  obligates both the buyer and the seller. B.  obligates the buyer but not the seller. C.  grants rights to the buyer and obligates the seller. D.  grants rights to the seller and obligates the buyer. E.  grants rights to both the buyer and the seller but does not obligate either party. Refer to section 23.6

37.

The buyer of an option contract:    A.  receives the option premium in exchange for an obligation to either buy or sell an underlying asset. B.  pays an option premium in exchange for a right to buy or sell an underlying asset during a specified period of time. C.  pays the strike price at the time the option is purchased and in exchange receives the right to exercise the option at any time during the option period. D.  receives the option premium in exchange for guaranteeing the purchase or sale of an underlying asset if called upon to do so. E.  pays the option premium in exchange for receiving the strike price at a later date. Refer to section 23.6

38.

An option contract: I. can be used to hedge risk. II. can be used to speculate in the market. III. can be based on a futures contract to create a futures option. IV. cannot be based on a foreign currency.    A.  II and III only B.  I and II only C.  I, II, and III only D.  II, III, and IV only E.  I, II, III, and IV Refer to section 23.6

39.

Which two of the following are key differences between an option contract and a forward contract? I. option contracts can be resold but forward contracts cannot II. the option price is determined at settlement while the forward price is determined when the contract is initiated III. the rights and obligations of the buyer IV. cost when contract initiated    A.  I and III only B.  II and IV only C.  III and IV only D.  I and II only E.  II and III only Refer to sections 23.3 and 23.6