1、1. Consider a convertible bond that is trading at a conversion premium of 20 percent. If the value of the underlying stock rises by 25 percent, the value of the bond will: A. rise by less than 25%. B. rise by 25%. C. rise by more than 25%. D. remain unchanged. Correct answer: A The convertible bond
2、implicitly gives bondholders a call option on the underlying stock. The delta of this option will vary between 0 (when the option is extremely out of the money) and 1 (when the option is extremely in the money). In this case, the bond is trading at a conversion premium of 20% so the delta must be so
3、mewhere between zero and one, and hence the price of the convertible bond will rise by less than the price of the underlying stock. 2. If a cash flow of $10,000 in two years time has a PV of $8,455, the annual percentage rate, assuming continuous compounding is CLOSEST to: A. 8.13%. B. 8.39%. C. 8.7
4、5%. D. 8.95%. Correct answer: B Continuously compounded rate = ln(FV/PV)/N = ln(10000 / 8455) / 2 = 8.39%. 3. The current values of a firms assets and liabilities are 200 million and 160 million respectively. If the asset values are expected to grow by 40 million and liability values by 30 million w
5、ithin a year and if the annual standard deviation of these values is 50 million, the distance from default in the KMV model would be closest to: A. 0.8 standard deviations. B. 1.0 standard deviations. C. 1.2 standard deviations. D. Cannot not be determined. Correct answer: B Distance from default =
6、(Expected value of assets - Expected value of liabilities) / Standard deviation = (240 - 190)/50 = 1.0. 4. What is the semiannual-pay bond equivalent yield on an annual-pay bond with a yield to maturity of 12.51 percent? A. 12.00%. B. 11.49%. C. 12.51%. D. 12.14%. Correct answer: D: The semiannual-p
7、ay bond equivalent yield of an annual-pay bond = 2 * (1 + yield to maturity on the annual-pay bond)0.5 -1 = 12.14%. 5. You want to test at the 0.05 level of significance that the mean price of luxury cars is greater than $80,000. A random sample of 50 cars has a mean price of $88,000. The population
8、 standard deviation is $15,000. What is the alternative hypothesis? A. The population mean is greater than or equal to $80,000. B. The population mean is less than $80,000. C. The population mean is not equal to $80,000. D. The population mean is greater than is $80,000. Correct answer: D The altern
9、ate hypothesis is the statement which will be accepted if the null hypothesis is proven wrong. Therefore, we make whatever we are trying to test as the alternate hypothesis - in this case that the mean price of luxury cars is greater than $80,000, and the null hypothesis as the opposite (the mean pr
10、ice of luxury cars is less than or equal to $80,000). This problem is a common example of how statisticians establish hypotheses by proving that the opposite (i.e. the null hypothesis) is false. 6. Suppose that Gene owns a perpetuity, issued by an insurance company that pays $1,250 at the end of eac
11、h year. The insurance company now wishes to replace it with a decreasing perpetuity of $1,500 decreasing at 1% p.a. without any change in the payment dates. At what rate of interest (assuming a flat yield curve) would Gene be indifferent between the choices? A. 4%. B. 5%. C. 6%. D. 9%. Correct answe
12、r: B 1,250 / r = 1,500 / (r + 1%) or, 1,250 x (r + 1%) = 1,500 x r or, r = 12.5 / (1,500 - 1,250) = 5%. 7. Which of the following is considered to be the responsibility of the legal risk manager? I. Inadequate documentation o f OTC derivatives transactions. II. The enforceability of netting agreemen
13、ts in bankruptcy. III. Default on interest and principal payments. A. I only B. II only C. I and II only D. I, II, and III Answer : D Legal risk management is concerned with adequate documentation, public filings, compliance with regulatory entities, and some borrower impositions. The legal manager
14、is also involved in deciding if default has occurred and, if so, assisting with the enforcement of netting agreements. 8. An analyst has constructed the following t-test for a portfolio of financial securities whose returns are normally distributed: Number of securities = 40. H0: Mean return = 18 pe
15、rcent. Significance level = 0.1 What is the rejection point for this test? A. 1.304. B. 1.684. C. 2.021. D. 2.023. Correct answer: A This is a one-tailed test with 39 degrees of freedom and significance level of 0.1. Looking up the Students t-distribution for df = 39 and p = 0.1, we get the critical
16、 value of 1.304. 9. Consider an A-rated institution that funds itself in the wholesale market at LIBOR + 90bps. Which of the following is the most attractive instrument for this firm to take exposure to an AAA-corporate issuer? A. Credit swap. B. Floating rate note. C. Credit-linked note. D. Fixed c
17、oupon bond. Correct answer: A This firm has a fairly high funding cost. Funding itself at 90 bps over LIBOR and lending to AAA names at around LIBOR is a loss making strategy, which rules out the notes and the bond. The only way this firm can make money is by selling credit protection via a credit s
18、wap that does not require it to make a physical investment. 10. Which of the following statements about the Treynor ratio is correct? A. The Treynor ratio considers both systematic and unsystematic risk of a portfolio. B. The Treynor ratio is equal to the excess return of a portfolio over the risk-f
19、ree rate divided by the total risk of the portfolio. C. The Treynor ratio can be used to appraise the performance of well-diversified portfolios. D. The Treynor ratio is derived from portfolio theory since it assesses a portfolios excess return relative to its risk. Answer: C A is incorrect - Treyno
20、r ratio considers only systematic risk of a well-diversified portfolio B is incorrect - Treynor ratio denominator is beta of the portfolio C is correct - this statement is correct D is correct - Treynor ratio is derived from CAPM and not portfolio theory 11. Which of the following is TRUE in relatio
21、n to affirmative covenants? A. They prohibit the borrower from issuing new debt. B. They prohibit the borrower from paying dividends above a limit to shareholders. C. They require the borrower to take actions to service the debt and maintain collateral. D.They prohibit the borrower from paying divid
22、ends under certain circumstances to shareholders Correct answer: C Affirmative covenants are terms that require the borrower to take actions to service the debt and maintain collateral. 12. Suppose that you need to borrow $1 million for 24 months. Two large US-based international banks with equal cr
23、edit ratings offer deposit rates of 2%. To choose between the two banks, you would need all of the following except: A. day count basis. B. compounding basis. C. currency of deposit. D. balance sheets of the banks. Correct answer: D $1 million is a relatively small amount and the liquidity risk is n
24、ot high in most markets. All other factors are crucial for the decision. 13. An analyst wants to test whether the variance of return from telecom stocks is higher than 0.04. For this purpose, he obtains the following data from a sample of 51 telecom stocks. Mean return from telecom stocks = 15% Stan
25、dard deviation of return from telecom stocks = 24% Mean return from market = 12% Standard deviation of return from market = 13% Based on this information and a 0.05 significance level: A. we can say that the variance of telecom firms is lower than 0.04. B. we can say that the variance of telecom fir
26、ms is higher than 0.04. C. we cannot say that the variance of telecom firms is lower than 0.04. D. none of the above. Correct answer: B Tests of the variance of a population require the chi-squared test. For this data, chi-squared = (n - 1) x Sample variance / Hypothesized variance = 50 x 0.242 / 0.
27、04 = 72. Since the analyst wants to show that the variance is more than 0.04, this will be chosen as the alternative hypothesis and the null hypothesis will be that the variance is lower than or equal to 0.04. The critical value of the chi-squared statistic (for df=50 and p=0.05) is 67.505. Since th
28、e test statistic is higher than the critical statistic, we can reject the null hypothesis (variance 0.04). 14. Which of the following internal controls does NOT effectively reduce operational risk? A. Separation of trading from accounting and data entry B. Automated reminders of payments required an
29、d contract expirations C. A multitude of users can modify trade tickets so that errors may be quickly corrected D. Reconciling results from different systems to ensure data integrity Answer: C Proper practice limits the amount of people who can change trade tickets and what information can be change
30、d once a ticket is written. Double checking work, separating duties, and automatic reminders all help lower operational risk. 15. It would be prudent for a trader to direct accounting entries in the following situation: A. Never. B. when senior management of the firm and the Board of Directors are a
31、ware and have approved such on an exception basis. C. when audit controls are such that the entries are reviewed on a regular basis to ensure detection of irregularities. D. solely during such times as staffing turnover requires the trader to back-fill until additional personnel can be hired and tra
32、ined. Answer: A In accordance with the separation of duties principle, it would never be appropriate for a trader to direct the accounting entries. 16. Which of the following statements concerning coupon rate structures is FALSE? A. Zero-coupon bonds have only one cash inflow at maturity. B. Accrual
33、 bonds, like zero-coupon bonds, always sell at a discount to face value. C. Accrual bonds have only one cash inflow at maturity. D. Step-up notes have coupon rates that increase over time at a pre-specified rate. correct answer： B. Accrual bonds, unlike zero-coupon bonds, do not always sell at a dis
34、count to face value. The interest accrues forward and thus the bonds are likely to sell for more than face value. 17. Consider the following 3-year currency swap, which involves exchanging annual interest of 2.75% on 10 million US dollars for 3.75% on 15 million Canadian dollars. The CAD/USD spot ra
35、te is 1.52. The term structure is flat in both countries. Calculate the value of the swap in USD if interest rates in Canada are 5% and in the United States are 4%. Assume continuous compounding. Round to the nearest dollar. A. $152,000 B. $145,693 C. $131,967 D. $127,818 Answer: C () ( )swap USD o
36、GBPVUSDB SB= （oS = spot rate in USD per GBP） () () ().1 .2 ,3( ) ( ) (notional + ) rt rt rtfixed f year f year f yearB PMT e PMT e PMT e =+ Step 1.calculate value of USD-denominated bond: %75.2*10000000275000182,631,9000,275,10000,275000,275304.0204.0104.0=+=USDeeeBUSDStep 2.calculate value of CAD-d
37、enominated bond BCAD=565200e-0.05*1+565200e-0.05*2+15565200e-0.05*3=CAD14438805 565200=15000000*3.75% Step 3.calculate value of swap () ( )swap USD o CADVUSDB SB=（oS = spot rate in USD per CAD） =9631182-14438805/1.52=USD131967 18. A 3-year, 8 percent semiannual coupon bond with $100 par value curren
38、tly yields 8.50 percent. What would be the price of the bond? A. $95.49. B. $99.24. C. $98.70. D. $119.50. Correct answer:C I/Y = 8.50/2 = 4.25; FV = 100; N = 3x2 = 6; PMT = 0.08/2 x 100 = 4; PV = -98.70. 19. Given that the dollar yen volatility is 12 percent and dollar peso volatility is 15 percent
39、, and the correlation between dollar yen and dollar peso is 0.25, the best estimate of the yen peso volatility is: A. 16.7%. B. 19.2%. C. 21.4%. D. 23.1%. Correct answer: A Here we use the expression that: (Vol_A/B)2 = (Vol_A)2 + (Vol_B)2 - 2 x Correlation x (Vol_A) x (Vol_B). Therefore, yen/peso vo
40、latility = (0.122 + 0.152 - 2 x 0.25 x 0.12 x 0.15)0.5 = 16.7%. 20. Suppose the daily returns of a portfolio and a benchmark portfolio it is replicating are as follows: Portfolio Return (bps) benchmark Portfolio Return(bps) Day 1 34 30 Day 2 -89 -87 Day 3 108 102 Day 4 70 70 What is the tracking err
41、or over the four day period? A. 3.16 bps B. 2 bps C. 10 bps D. 2.39 bps Answer: A A. Correct. Tracking error is the standard deviation of the difference between the return of the managed portfolio and the benchmark portfolio. eptracking error = and E RP - RB = (4 + (-2) + 6 + 0) / 4 = 2.00 E (RP - R
42、B)2= (16 + 4 + 36 + 0) / 4 = 14.00 So, TE = (14.00 - 4.00)1/2 = 3.16 bps. B. Incorrect. This solution incorrectly sets the tracking error equal to the average difference between the return of the managed portfolio and the benchmark portfolio. Tracking error is the standard deviation of the differenc
43、e between the return of the managed portfolio and the benchmark portfolio. C. Incorrect. This solution incorrectly sets the tracking error equal to the variance of the difference between the return of the managed portfolio and the benchmark portfolio. Tracking error is the standard deviation of the
44、difference between the return of the managed portfolio and the benchmark portfolio. D. Incorrect. This solution incorrectly sets the tracking error equal to the difference between the standard deviation of the return of the managed portfolio and the standard deviation of the return of the benchmark
45、portfolio. Tracking error is the standard deviation of the difference between the return of the managed portfolio and the benchmark portfolio. 21. Which of the following statements are true with regard to a 3-year Bermuda put option? I. A lower bound on its price is the price of a 3-year European pu
46、t option. II. A lower bound on its price is the price of a 3-year American put option. III. It is likely to outperform both European and American put options as the price of the underlying rises. A. I only B. II only C. II and III D. III only Answer: A The Bermuda put option allows multiple opportun
47、ities to exercise. Therefore, its price must be higher than that of a European put option (which allows exercise only at maturity) but less than that of American put option (which allows exercise at any point before maturity). 22. Consider two portfolios: Portfolio I consists of 100 bonds, each rate
48、d AAA, all weighted equally; and Portfolio II consists of 20 bonds, each rated A, all weighted equally. The 1-year default probabilities of AAA and A bonds are 0.1% and 0.5% respectively in this country. Assume that the event of default on any bond is independent of default on others. Which one of t
49、he following statements is TRUE? A. The probability of observing no default in Portfolio I is lower than in Portfolio II. B. The probability of observing no default in Portfolio I is higher than in Portfolio II. C. The probability of observing no default in Portfolio I is roughly the same as Portfolio II. D. Insufficient information, we need to know the recovery rates. Correct answer: C Probability (no default in Portfolio I) = (1-0.1%)100 =90.48%. Probability (no default in Portfolio II) = (1-0.5%)20 =90.46%. Notes: 1 The question
