Options And Variable Products Quiz Flashcards
Unless instructed to the contrary the options clearing corporation OCC will automatically exercise all option that are
At least $0.01 in the money
What is the total premium for the following index option OEX OCT 750 call @ $9.50
$950
Your client has a portfolio of treasury bonds. You are connected about a ride in interest rates. Which of the following would you recommend?
Buy T -Bond puts
Which of the following statements regarding the impact of market performance on variable life insurance policy is True?
If performance in the separate account is negative the policy may have no cash value
A financial institution has a large portfolio of Us treasury notes and is concerned that interest rates are about to increase. Rather than selling off the notes thereby creating portfolio volatility the institution could attempt to offset the portfolios unrealized losses by
Buying T-Note puts
Bill Scott took a loan against his variable life policy several years ago. Because of poor investment performance. Bills policy cash value has dropped to a negative value of $500. What are Bills options?
Bill has 31 days to pay back enough of the loan to bring the cash value positive
American style options may be excercised
At any time up to the cut off time
The owner of a variable annuity is guaranteed to receive payments for a minimum of 15 years. This annuity is a
Life annuity with period certain
A customer buys an 8 1/2% T-Bond maturing in 5 years. He also buys a T-Bond put. Interest rates appreciate to 10%. Which of the following will occur upon sale of the bond and exercise of the put?
Position will be closed for a loss
The strike price of treasury bond options is stated as a percentage of the
Face amount of the underlying bonds
Which of the following is true about variable annuities?
They are regulated by state departments of insurance
They are regulated by the investment company act of 1940
They are considered securities products
John owns a contract that entitles him to buy 100 shares of ABC at a specified price prior to a fixed expiration date. John owns a
Call option
A customer has a portfolio of treasury securities. In order to increase investment income
Write calls
If you anticipate interest rates to decline you would recommend a
T-Bond yield put
T-Bond call
The market price of ABC stock is $17.25. The ABC June 20 call
Is out of the money
The expense limitation clause of a life insurance policy
Requires the insurance company to pay administrative expenses above the maximum charges stated in the policy
A deferred variable annuity may be a suitable investment for which of the following investors?
A 55 year old investor with a high income looking for a tax deferred investment which will provide inflation protected income during retirement years
The owner of a variable annuity is guaranteed to receive payments for a minimum of 15 years. This is annuity is a
Life annuity with period certain
Variable life policy provision allow for
Changing among investment alternatives in the separate account without tax liabilities
Converting the policy to a whole life policy
If an insured commits suicide within the first 2 years of a variable life policy issue the insurance company
Returns the premiums paid into the policy
A domestic company is exporting goods to Europe. Which of the following option strategies would it use?
Buy euro puts
What are the benefits of writing covered calls?
Income and a partial hedge
Which of the following apply to a call option contract?
The right to buy at a strike price
The obligation to sell at a strike price
Which of the following statements is true?
Covered options writers own the underlying shares
The strike price of treasury bond options is stated as a percentage of the
Face amount of underlying bonds
A company is building a plant in Japan using Japanese Labor. The company will pay the labor force in Japanese yen in approximately 3 months. The company believes the dollar will decline against the yen. In order to best protect itself what option position should the company choose?
Buy Japanese yen call
What is the cost of a March 120 T-Bond call with a premium of .20?
$625
Which of the following apply to put option contracts?
Right to sell at a strike price
Obligation to buy at a strike price
The options disclosure document of the options clearing corporation OCC must be sent to the customer
At or prior to account approval
The securities in the separate account of a variable annuity include common stocks because
Prices of common stock tend to reflect increases or decreases in the cost of living
The best definition of an annuity unit is
An accounting measure that is created at the beginning of the annuity period and is used to determine the amount of future annuity payments
A variable life insurance policy states of the following
Current and maximum investment management fee
Current and maximum administrative expenses
Current and maximum mortality costs
A mutual fund portfolio manager expects interest rates to increase. He wishes to protect his treasury bond portfolio but also wishes to generate some additional income. What would be the most appropriate action for the portfolio manager to take?
Sell T-Bond calls
Which of the following settlement options will give the annuitant the highest periodic payment?
Straight life
American style options may be exercised
At any time to the cut off time
A variable life policy’s nonforfeiture provision
Entitles the policy owner to he cash value less any outstanding loan amount if the policy is terminated
A simultaneous investment in a call and a put on the same underlying security with the same strike price and the same expiration date is a
Straddle
If XYZ stock is trading at 27.50 which of the following options are in the money?
XYZ July 25 call
XYZ August 30 put
An investor is very bullish on a stock. Which of the following actions would provide the greatest potential short term gain based on this belief?
Buy one call on the stock
Which of the following is guaranteed?
Interest on a fixed annuity contract
Interest and principle on direct government obligations
Death benefit on a whole life insurance policy
An investor owns 1000 shares of ABC a biotechnology company that is still in the early stages of testing a new drug. The price of the stock dropped recently but the investor believes that the drug the company is developing will be a blockbuster. Which of the following strategies would enable the investor to increase the overall return on his portfolio during this time?
Write 10 ABC calls
Which types of variable annuities use accommodation units to track the owners interest in the separate account?
Single premium deferred annuity
Periodic payment deferred annuity
The holder of a call option on a T-Bond will profit under all of the following circumstances
Yields on T-Bonds decrease
Prices of T-bonds increases
A US corporation imports goods from Switzerland. Which of the following option positions should it choose to best protect itself?
Buy Swiss franc calls
When Bob Turner does he was the owner of a variable life insurance policy that had a $110,000 cash value and a $250,000 death benefit. Three years earlier he had taken out a loan on the policy for $30,000. How much in death benefit proceeds will his beneficiary receive?
$220,000
An option contract that gives the holder of the contract the right to sell the underlying security at the strike price is a
Put option
An annuity owner chooses the straight life annuitization option because
It provides the maximum cash flow of all his options
The buyer of a long straddle
Buys a put and a call on the same underlying security with the same strike price and expiration date
Cash value in variable life policies are required to be made available to the policyholder if the premium payments stop. This is the contractual feature known as the
Nonforfeiture provision
An option spread with the same expiration but different strike prices is called a
Vertical spread
Which of the following securities acts governs the variable annuity separate account?
The investment company act of 1940
Which of the following are correct statements about the separate account in a variable contract?
The separate account is segregated from the general account
The separate account cannot be mixed with assets from the mutual fund family’s regular funds even if managed by the same fund manager
All of the following are true of voting rights of variable life policy owners
Have one vote for every $100 of cash value
Have the same rights as investment company shareholders
Are entitled to vote on investment objectives of the separate account
What type of annuity contract could act as a hedge against either inflation or deflation?
Combination annuity
The cash value of a variable life policy
Is not guaranteed
Increases as premiums are paid
Fluctuates based on the performance of the securities in the separate account
Recommending the exchange of a deferred variable annuity is subject to suitability standards and to all of the following additional considerations
Features and enhancements of the new annuity that would benefit the customer
Surrender charges on the existing annuity
Loss of benefits of the existing annuity
The function of a prospectus in association with a variable contract is to
Provide the consumer with complete information in order to make an informed decision
A customer buys an 8 1/2% T-Bond maturing in 5 years. He also buys a T-Bond put. Interest rates appreciate to 10%. Which of the following will occur upon sale of the bond and exercise of the put?
Position will be closed for a loss
Triple witching involves the expiration of which of the following four times a year?
Equity options
Equity option indexes
Concerning valuation of variable annuity all of the following are true
The value of a unit varies with the performance of the separate account
The value is expressed in units similar to mutual fund shares
Units are revalued daily similar to mutual fund shares
ABC stock is trading at $18.30 a share. The ABC June 20 put has a premium of $2.60. It has a time value of
$0.90
Which annuity option provides the largest payout and costs the least?
Life only annuity
The manager of a bond fund has used the strategy of writing covered T-Bond calls as a means of increasing the funds yield Distributions to shareholders from this source of income will be treated for tax purposes as
Capital gains
The cash value of the separate account of a variable life policy is $1,000. How many votes may the policy owner cast on matters requiring policy owner approval?
10
Most stock options are settled which way?
Physically
Actuarial science considers a person to be statistically dead at
Age 100
A grandfather wants to buy an annuity that will be the best benefit to both his son and grandfather. What annuity type would best suit his needs?
Joint and last survivor
