3 Months Free Update
3 Months Free Update
3 Months Free Update
What would be the most profitable strategy for an investor who expects interest rates to rise:
The rate of dividend on a stock goes up. What is the effect on the price of a call option on this stock?
A bond pays semi-annual coupons at an annual rate of 10%, and will mature in a year. What is its modified duration? Assume the yield curve is flat for the next 12 months at 5%.
What would be the total all in price payable on an 5% annual coupon bond quoted at a clean price of $98, where the settlement date is 60 days after the latest coupon payment. Use Act/360 day basis.
Imagine two perpetual bonds, ie bonds that pay a coupon till perpetuity and the issuer does not have an obligation to redeem. If the coupon on Bond A is 5%, and on Bond B is 15%, which of the following statements will be true:
I. The Macaulay duration of Bond A will be 3 times the Macaulay duration of Bond B.
II. Bond A and Bond B will have the same modified duration
III. Bond A will be priced at less than 1/3rd the price of Bond B
IV. Both Bond A and Bond B will have a duration of infinity as they never mature
For a forward contract on a commodity, an increase in carrying costs (all other factors remaining constant) has the effect of:
A bank holds a portfolio of residential mortgages. An increase in the volatility of mortgage interest rates leads to:
Which of the following statements is true:
I. In a Dutch auction, every successful bidder pays the same price regardless of their bid
II. In a standard auction, every successful bidder pays the same price regardless of their bid
III. Dutch auctions start high and progressive bids are lower
IV. Standard auctions start high and progressive bids are lower
An investor believes that the market is likely to stay where it is. Which of the following option strategies will help him profit should his view be proven correct (assume all strategies described below are long only)?
If the 1-year forward rates for years 1,2,3 and 4 are 2%, 3%, 4% and 5% respectively, what is the zero coupon spot rate for 4 years
The rule that optimal portfolios will maximize the Sharpe ratio only applies when which of the following conditions is satisfied:
I. It is possible to borrow or lend any amounts at the risk free rate
II. Investors' risk preferences are fully described by expected returns and standard deviation
III. Investors are risk neutral
Which of the following statements are true in respect of a fixed income portfolio:
I. A hedge based on portfolio duration is valid only for small changes in interest rates and needs periodic readjusting
II. A duration based portfolio hedge can be improved by making a convexity adjustment
III. A long position in bonds benefits from the resulting negative convexity
IV. A duration based hedge makes the implicit assumption that only parallel shifts in the yield curve are possible
A bank holding a basket of credit sensitive securities transfers these to a special purpose vehicle (SPV), which sells notes based on these securities to third party investors. Which of the following terms best describes this arrangement?
Which of the following statements are true:
I. A credit default swap provides exposure to credit risk alone and none to credit spreads
II. A CDS contract provides exposure to default risk and credit spreads
III. A TRS can be used as a funding source by the party paying LIBOR or other floating rate
IV. A CLN is an unfunded security for getting exposure to credit risk
A portfolio comprising a long call and a short put option has the same payoff as:
Which of the following is true about the early exercise of an American call option:
Which of the following statements is true:
I. The standard deviation of a short position is the same as the standard deviation of a long position
II. The expected return of a short position is the same as that a long position in the same asset
III. If two assets are perfectly positively correlated, then a short position in one and a long position in the other are negatively correlated
IV. If we increase the weight of an asset in a portfolio, its correlation with other assets in the portfolio scales up proportionately
A stock has a spot price of $102. It is expected that it will pay a dividend of $2.20 per share in 6 months. What is the price of the stock 9 months forward? Assume zero coupon interest rates for 6 months to be 6%, for 9 months to be 7%, and 12 months to be 8% - all continuously compounded.
A bank sells an interest rate swap to its client, with the client agreeing to pay the bank a fixed 4% and receive 3 month LIBOR + 100 basis points, payments due every quarter. After quarter 1, the 3 month LIBOR is 2% pa. Which of the following payments will happen in respect of this swap, assuming the contract notional is $100m, and the rate convention is 30/360.
Using covered interest parity, calculate the 3 month CAD/USD forward rate if the spot CAD/USD rate is 1.1239 and the three month interest rates on CAD and USD are 0.75% and 0.4% annually respectively.
Which of the following relationships are true:
I. Delta of Put = Delta of Call - 1
II. Vega of Call = Vega of Put
III. Gamma of Call = Gamma of Put
IV. Theta of Put > Theta of Call
Assume dividends are zero.
Which of the following statements is a correct description of the phrase present value of a basis point?
Calculate the settlement amount for a buyer of a 3 x 6 FRA with a notional of $1m and contract rate of 5%. Assume settlement rate is 6%.
A borrower who fears a rise in interest rates and wishes to hedge against that risk should:
If the CHF/USD spot rate is 1.1010 and the one year forward is 1.1040, what is the annualized forward premium or discount, and the one year swap rate?
The LIBOR square swap offers the square of the interest rate change between contract inception and settlement date. If LIBOR at inception is y, and upon settlement is x, the contract pays (x - y)2 for x > y; and -(x - y)2 for x < y.
What of the following cannot be a value of the gamma of this contract?
Which of the following have a negative gamma:
I. a long call position
II. a short put position
III. a short call position
IV. a long put position
Calculate the fair no-arbitrage spot price of oil if the price of a one year forward is $75, the discrete one year interest rates are 6%, and annual storage costs are $4 per barrel paid at the end of the year.