In a one-year forward contract on a CDS that will last five years, what usually happens
if there is a default during the first year?
A. There is a payoff to the forward protection buyer at the time of default
B. There is a payoff to the forward protection buyer at the end of one year
C. There is a payoff to the forward protection buyer at the end of six years
D. The contract ceases to exist
If e is a random sample from a standard normal distribution, which of the following is
the change in a Wiener process in time dt .
A. e times the square root of dt
B. e times dt
C. dt times the square root of e
D. The square root of e times the square root of dt
A repo rate is
A. An uncollateralized rate
B. A rate where the credit risk is relative high
C. The rate implicit in a transaction where securities are sold and bought back later at a
higher price
D. None of the above
Which of the following is true?
A. A long call is the same as a short put
B. A short call is the same as a long put
C. A call on a stock plus a stock is the same as a put
D. None of the above
Which of the following describes stressed VaR?
A. It is based on movements in market variables in stressed market conditions
B. It is VaR with a very high confidence level
C. It is VaR multiplied by a factor of 3
D. None of the above
Which of the following is true about the practice of backdating a stock options grant?
A. It is illegal
B. It is illegal in the majority of states in the U.S., but not all states
C. It is illegal in roughly half the states in the U.S.
D. It is unethical, but not illegal
The gain from a project is equally likely to have any value between -$0.15 million and
+$0.85 million. What is the 99% expected shortfall?
A. $0.145 million
B. $0.14 million
C. $0.13 million
D. $0.10 million
What term is used to describe losses shareholders experience because the interests of
managers are not aligned with their own?
A. Agency costs
B. Backdating scandals
C. Dilution
D. Income statement expense
When moving from valuing an option on a non-dividend paying stock to an option on a
currency which of the following is true?
A. The risk-free rate is replaced by the excess of the domestic risk-free rate over the
foreign risk-free rate in all calculations
B. The formula for u changes
C. The risk-free rate is replaced by the excess of the domestic risk-free rate over the
foreign risk-free rate for discounting
D. The risk-free rate is replaced by the excess of the domestic risk-free rate over the
foreign risk-free rate when p is calculated
Which of the following describes tailing the hedge?
A. A strategy where the hedge position is increased at the end of the life of the hedge
B. A strategy where the hedge position is increased at the end of the life of the futures
contract
C. A more exact calculation of the hedge ratio when forward contracts are used for
hedging
D. None of the above
Which of the following is a definition of volatility
A. The standard deviation of the return, measured with continuous compounding, in one
year
B. The variance of the return, measured with continuous compounding, in one year
C. The standard deviation of the stock price in one year
D. The variance of the stock price in one year
An investor has $2,000 invested in stock A and $5,000 in stock B. The daily volatilities
of A and B are 1.5% and 1% respectively and the coefficient of correlation is 0.8. What
is the one day 99% VaR? Assume that returns are multivariate normal (Note that
N(-2.326)=0.01)
A. $177
B. $135
C. $215
D. $331
The delta of a call option on a non-dividend-paying stock is 0.4. What is the delta of the
corresponding put option?
A. -0.4
B. 0.4
C. -0.6
D. 0.6
Which of the following describes delta?
A. The ratio of the option price to the stock price
B. The ratio of the stock price to the option price
C. The ratio of a change in the option price to the corresponding change in the stock
price
D. The ratio of a change in the stock price to the corresponding change in the option
price