1、 Valuation and Risk Models Questions 1、Calculate the value of a one-year put option today for a stock that currently trades at $40 and can either move to $44 or $36 at the end of a year. The continuously compounded risk-free rate is 3 percent and the put strike price is $40. The put options value is
2、 closest to: A) $2.70. B) $2.02. C) $2.36. 2、According to Moodys credit rating scheme, a rating below investment grade is: A) Ba. B) Aaa. C) Aa. D) Baa. Question 16 - #30059 The highest speculative grade rating assigned by Moodys is: A) Ba. B) B. C) Baa. D) Caa. If the one-year spot rate is 7 percen
3、t and the one-year forward rate is 7.4 percent, what is the two-year spot rate? A) 7.12 %.B) 7.20%. C) 7.27%. D) 7.40%. Which of the following statements about covenants is CORRECT? Covenants: A) decrease adjusted exposure by decreasing recovery rates.B) increase adjusted exposure by decreasing comm
4、itments. C) decrease adjusted exposure by increasing commitments. D) decrease adjusted exposure by increasing recovery rates.Under the Moodys bond rating system, the threshold for non-investment grade debt is reached when a bonds rating falls from: 1 A) A to Baa.B) Baa to Ba. C) Ba to B. D) Caa to D
5、. Six months ago an investor purchased a bond that was rated BB. Today the bond is upgraded to a BBB rating. The most likely effect of this upgrade is: A) an increase in yield to maturity.B) increased liquidity risk. C) a higher spot price. D) increased call risk. Which of the following internal rat
6、ing credit systems is more likely to be procyclical (i.e., tend to amplify the business cycle)? I. At-the-point approach. II. Through-the-cycle approach. A) II only. B) I and II. C) Neither I nor II. D) I only. Which of the following internal rating credit systems develop ratings for long time horiz
7、ons (more than one year)? I. At-the-point approach. II. Through-the-cycle approach. A) I only. B) II only. C) I and II. D) Neither I nor II. Using the Black-Scholes model, compute the value of a European call option using the following imputs: Underlying stock price: $100 Exercise price: $90 Risk-fr
8、ee interest rate: 5% Volatility: 20% Dividend yield: 0% Time to expiration: one year The Black-Scholes call option price is closest to: 2 A) $16.71.B) $13.65.C) $15.33.D) $17.99.Which of the following statements most accurately describe an appropriate step in the structured Monte Carlo (SMC) approac
9、h for measuring risk? I. The first step simulates thousands of valuation outcomes for the underlying assets. II. The first step assumes some properties of the underlying assets return distribution (e.g., normality). III. The second step measures the value-at-risk (VAR) for the portfolio of derivativ
10、es based on the simulated outcomes. A) I, II and III. B) I only. C) II only. D) I and III. Which of the following stress testing approaches have the disadvantage of historical data limitations? I. Use of historical events approach. II. Historical simulation approach. III. Stress scenarios approach.
11、A) I only. B) II only. C) I and II. D) I, II and III. When planning to hold a coupon-paying Treasury bond until maturity, which of the following types of risk would be the most important? A) Default. B) Reinvestment. C) Downgrade. D) Interest rate. An investor holds a 20-year, semi-annual 8.00 perce
12、nt coupon Treasury bond issued at par. Market interest rates are currently at 6.50 percent. The bond is noncallable. A coupon 3 payment is due this week. Which of the following choices best represents the type of risk the investor faces? A) Prepayment risk. B) Reinvestment risk. C) Liquidity risk. D
13、) Credit risk. The price of a semiannual pay, $1,000 face value bond with an 8 percent coupon rate with 10 years to maturity that currently yields 6.25 percent is closest to: A) $1,128.69. B) $1,000.00. C) $1,092.38. D) $1,179.40. A zero coupon bond with a face value of $1,000 has a price of $148. I
14、t matures in 20 years. Assuming annual compounding periods, the yield to maturity of the bond is: A) 9.68%. B) 11.24%.C) 14.80%.D) 10.02%.The type of capital used to buffer a bank from unexpected losses is known as: A) economical capital. B) regulatory capital. C) unexpected capital. D) risk-adjuste
15、d capital. Which of the following statements about unexpected loss is TRUE? A) Unexpected loss is a linear function of loss given default. B) Unexpected loss is a non-linear function of loss given default. C) Loss given default is a non-linear function of unexpected loss. D) Loss given default is a
16、linear function of unexpected loss. Which of the following formulas for unexpected loss is CORRECT? A) .B) .4 C) .D) .Which of the following statements about loan returns is (are) TRUE? I. Unexpected loss on the loan can result from default. II. Unexpected loss on the loan can result from credit mig
17、ration. III. Loan returns increase as recovery rates decrease. A) I only. B) II and III only. C) I and II only. D) I, II, and III. Which of the following statement is (are) CORRECT? Stress testing plans should take into consideration inter-correlations between: I. reputational and liquidity risks. I
18、I. funding and market risks. III. market and pipeline risks. IV. basis and liquidity risks. A) I, II and III. B) I and II. C) I, II, III and IV. D) I only. Which of the following statements about zero-coupon bonds is FALSE? A) A zero coupon bond may sell at a premium to par when interest rates decli
19、ne.B) The lower the price, the greater the return for a given maturity. C) All interest is earned at maturity. D) A zero-coupon bond provides a single cash flow at maturity equal to its par value. Which of the following statements regarding U.S. Treasury issues is least accurate? A) Investment banke
20、rs strip the coupons from Treasury notes and bonds to create zero-coupon securities. B) A 5-year Treasury note can be stripped into 11 different zero coupon securities.C) The U.S. Treasury issues zero coupon notes, but not bonds. D) Due to the way Treasury STRIPS are taxed, U.S. investors may face n
21、egative cash flows before the maturity date. 5 The price value of a basis point (PVBP) of a bond is $0.75. If the yield on the bond goes up by 1 bps, the price of the bond will: A) decline by $0.75. B) increase by $0.75. C) increase or decrease by $0.75. D) is less volatile than a bond with a PBVP o
22、f $0.50.The goal of computing effective duration is to get a: A) preliminary estimate of modified duration. B) more accurate measure of the bonds price sensitivity when embedded options exist. C) preliminary estimate of Macaulay duration. D) measure of duration that is effectively constant for the l
23、ife of the bond. The risks that will tend to have high expected losses but relatively low unexpected losses are: A) high-frequency, high-severity risks. B) low-frequency, high-severity risks. C) low-frequency, low-severity risks. D) high-frequency, low-severity risks. Which of the following models d
24、oes NOT use regression analysis to measure operational risk by relating a financial variable to macroeconomic variables? A) Risk-profiling models. B) Multi-factor models. C) Income-based models. D) Expense-based models.Which of the following is NOT a use of stress testing? A) Stress testing compleme
25、nts value at risk (VAR). B) It can highlight weaknesses in contingency planning and assumptions. C) It enables the risk manager to eliminate all risk from a portfolio. D) It can be used for capital allocation across business units. Assume that the value at risk (VAR) over a 1-day time horizon for an
26、 $80 million equity portfolio at the 95 percent confidence level is calculated to be $792,000. Which of the following is a drawback to this VAR calculation? A) Increasing the time period used in the calculation will increase the VAR. 6 B) The interpretation of the VAR measure would be different for
27、a fixed-income portfolio. C) The measure is backward looking. D) The actual loss in a time of extreme market stress could be much greater than $792,000. Greg Beck is using the conditional scenario method while conducting multidimensional scenario analysis. Which of the following statements are NOT c
28、haracteristics of his correlation estimates? I. The correlations are calculated from stressed time periods only. II. All risk factor correlations are weighted equally. III. Stressed correlations are estimated as three times the value as those in a normal market. A) I and III. B) II and III. C) I, II
29、 and III. D) I and II. Which of the following would least likely be a part of a stress test? A) Computing market value at risk. B) Choosing the time period over which the stress will take place. C) Choosing the market factors. D) Adjusting the correlations of risk factors. Country F has a debt servi
30、ce ratio (DSR) of 4. Its exports total $17 billion, and its principal repayments are $3 billion. The value of its interest payments is closest to: A) $2.3 billion. B) $4 billion. C) $65 billion. D) $11 billion. Which of the following most accurately describes the relationship between computing inter
31、nal capital requirements using a stress testing approach versus a value at risk (VAR) capital strength approach? Stress testing approaches: A) are substitutes for VAR approaches since they better measure the entire spectrum of potential outcomes. B) should never be used since they are based entirely
32、 on subjective inputs. 7 C) complement VAR approaches since they account for scenarios that may not be properly considered in VAR approaches. D) can never be combined with VAR approaches because they are based on different probability distributions. Annual volatility: = 20.0% Annual risk-free rate =
33、 6.0% Exercise price (X) = 24 Time to maturity = 3 months Stock price, S $21.00 $22.00 $23.00 $24.00 $24.75 $25.00 Value of call, C $0.13 $0.32 $0.64 $1.14 $1.62 $1.80 % Decrease in S 16.00% 12.00% 8.00% 4.00% 1.00% % Decrease in C 92.83% 82.48% 64.15% 36.56% 9.91% Delta (C% / S%) 5.80 6.87 8.02 9.1
34、4 9.91 Suppose that the stock price is currently at $25.00 and the 3-month call option with an exercise price of $24.00 is $1.60. Using the linear derivative VAR method and the information in the above table, what is a 5% VAR for the call options weekly return? A) 50.7%. B) 43.4%. C) 45.3%. D) 21.6%. 8
