1. The current spot rate is $.58/SF. The 6-month forward rate is $.63/SF. A call option that expires in 6-months on 100,000 SF with a strike price of $.60/SF is selling for $1,900. A put option that expires in 6-months on 100,000 SF with a strike price of $.60/SF is selling for $600. Six months from now, the spot rate will be $.62/SF (this information is unknown right now, but I’m telling you). If you entered into a contract to sell 100,000 SF in the forward contract, how much would you have made (lost)?
a. Lost $1,900
b. Lost $600
c. Made $1,000
d. Made $2,000
2. Which of the following is NOT given as a reason for merger activity in the U.S.?
a. Synergistic benefits arising from mergers.
b. Increased market power and a reduction in competition resulting from mergers.
c. Attempts to stabilize earnings through diversification.
d. Making an acquisition tends to increase the acquiring company's stock price.