1. A bond portfolio manager wants to reduce the average duration of his portfolio consisting of fixed-rate government securities without selling any security. He will most likely: A. buy fixed-rate government bond futures. B. sell corporate bonds. C. execute a pay-fixed interest rate swap. 2. You have the following information related to a covered call position: stock… Read More

1. A non-dividend paying stock is trading at €100. A European call option on this stock has two years to mature. The periodically compounded risk-free interest rate is 3%, the exercise price of the option is €100. The up factor is 1.25, and the down factor is 0.80. The risk-neutral probability of an up move is… Read More

1. In a CDS contract, the party that agrees to make a series of fixed periodic payments to the counterparty over the contract term in return for a promise to be compensated by the counterparty in case of default is best known as: A. the credit protection buyer. B. the credit protection seller. C. an option… Read More

1. Which of the following statements is most accurate? The four measures commonly used to quantify credit risk are: A. credit spread, risk premium, present value of expected loss and recovery rate. B. probability of default, loss given default, expected loss, and the present value of expected loss. C. recovery rate, loss given default, expected… Read More

1. The interest rate model is based upon: A. pathwise valuation. B. Pascal Triangle. C. a lognormal model of interest rates. 2. The method(s) most likely used to estimate interest rate volatility is (are): A. the historical volatility method only. B. the implied volatility approach only. C. the historical volatility method or the implied volatility approach.… Read More

1.  According to Modigliani and Miller’s Proposition I with taxes ignoring costs of financial distress and bankruptcy, the value of a company with debt is: A. equal to value of a company without any debt. B. greater than the all-equity company by an amount equal to the debt tax shield. C. less than the unlevered… Read More

1.  Which of the following statements is least accurate? If inflation is higher than expected, the profitability of an investment is lower, because it: A. shifts wealth from the taxpayer to the government. B. increases real taxes, by reducing value of the depreciation tax shelter. C. decreases real taxes, by increasing value of the depreciation… Read More